Resources

• The Book Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming
• Drawdown Fund: Introduction
• Portfolio Companies
  • Hayden AI: decarbonizing mass-transit
  • Mori: natural protective layer to prolong food shelf life
  • Source: off-grid drinking water system
  • Arcadia: community solar

Host and Guest

Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative (LinkedIn)

Guest: Erik Snyder, Founder and CEO of Drawdown Fund (LinkedIn)

Transcript

Editor’s Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Erik Snyder:

One of my best friends asked me the question, "If you had a billion dollars, what would you do to benefit a billion and more people?” And that was the catalyst that led me eventually to the Drawdown Fund. I spent quite a bit of time with Paul Hawken. He started telling me about this non-profit he had started in 2014 to answer the question, "If we acknowledge climate change is occurring, what should we be doing to reverse it?" He had gotten so frustrated throughout his life and his business career that no one had answered that, so being an entrepreneur he's like, "All right, I will start a non-profit and I will answer that question." So, we took over two years and hired 75 research fellows from around the world to look at all the peer-reviewed science and data. Because Paul's thesis was that while climate change is human-caused, humanity is ingenious, and we have solutions today, if scaled, can reverse global warming. The output of about two and a half years of work was published in April of '17, and it was a book called Drawdown, which is the most comprehensive plan ever written to reverse global warming. When Paul started telling me about the framework back in late '16, early '17, being a nerd, being a former consultant, being Harvard Business School grad, I was just like, "Oh Paul, can I see the data models behind this?" And when he shared them, it blew me away. It was that moment that I think some of us get in our careers where we lean forward and we're like, "Oh wow, I feel like I need to do something here."

Mike Toffel:

This is Climate Rising, a podcast from Harvard Business School, and I am your Host Mike Toffel, a professor here at HBS. Today’s episode is on financing climate tech startups. At a recent HBS alumni reunion, I interviewed Erik Snyder, the Founder and CEO of the Drawdown Fund, to learn how he started this venture with Paul Hawken, the well-known entrepreneur and editor of the book Drawdown, an impressive guidebook on climate solutions. I asked Erik about the strategic choices they made to distinguish their fund from others, which types of Drawdown technologies are most appropriate for growth equity funding, and to describe some of companies they’ve invested in--from community solar to using AI to decarbonize mass-transit. I also asked him to share advice for those interested in getting into climate finance. Here's my interview with Erik Snyder, Founder and CEO of Drawdown Fund.

Mike Toffel:

Erik, thank you so much for joining me here on campus at your reunion, MBA class of 2009 section C. So, this is your 15th year reunion.

Erik Snyder:

It is.

Mike Toffel:

... and we've brought you on to talk about climate finance and the drawdown fund that you helped found. But let's start with just a brief intro, your background, your career journey, how you got into climate finance.

Erik Snyder:

Yeah. Well, first thank you for having me, Mike, and it's great to see so many familiar faces in the audience. Prior to business school I had a very traditional background, started my career in consulting and then I went to finance. So, I was like 50%, 60%, 70% of most of the people at Harvard Business School. Coming out of business school, I had an opportunity to be an operator, so I ran a ski company as well as start a multifamily office with my best friend, where we started making investments that today would be considered impact investments. We started doing things that were just candidly aligned to our values and things we were passionate about, and we got involved in things like bathymetry, which is ocean mapping, and got involved in building the first lead certified denim factory in the world down in Paraguay. Fast-forward a little bit, after doing that for a number of years, one of my best friends asked me the question, "If you had a billion dollars, what would you do to benefit a billion and more people?"

Mike Toffel:

That's a good provocative question.

Erik Snyder:

Right. And that was the catalyst that led me eventually to the Drawdown Fund. I spent about half a year advising a third-generationadv high net worth family, trying to help them figure out what they want their legacy to be. I had identified about 22 different challenges facing humanity, and I believe we can create systemic change really three ways: we can do so through culture change and movement, through policy, or through business. So I had identified 22 different challenges, three different levers, and went on a global road show talking to 150 people who were involved in trying to address these big challenges with different levers. In that process, I spent quite a bit of time with Paul Hawken. Paul, at that point in time, had written six books, three of which were directly at the intersection of business and the environment.

Mike Toffel:

Yeah, he was quite famous at the time certainly, in having written a bunch of books And he himself came from business background.

Erik Snyder:

He did.

Mike Toffel:

And he saw the light of climate really early I'd say, as an early author in this space.

Erik Snyder:

And for anyone who's from California, if you've been to Erewhon Market, he is credited with spurring the organic revolution as an early buyer of organics at Erewhon, and he started Smith & Hawken, the gardening and supply outdoor company, and a number of other businesses. But at that point in time had really written six books, and when I had the opportunity to go pick names I'm like, "Oh." I had met Paul about 10 years earlier, and he's very, very sweet. Now that we're business partners he's like, "Oh yeah, I remember that." He definitely didn't. I was just a fanboy at a book signing, and it was pretty incredible. And then to be able to reach back out to him, and when I met with him in late '16, early '17, he started telling me about this non-profit he had started in 2014 to answer the question, "If we acknowledge climate change is occurring, what should we be doing to reverse it?" He had gotten so frustrated throughout his life and his business career that no one had answered that, so being an entrepreneur he's like, "All right, I will start a non-profit and I will answer that question." So, we took over two years and hired 75 research fellows from around the world to look at all the peer-reviewed science and data. Because Paul's thesis was that while climate change is human-caused, humanity is ingenious, and we have solutions today, if scaled, can reverse global warming. The output of about two and a half years of work was published in April of '17, and it was a book called Drawdown, which is the most comprehensive plan ever written to reverse global warming. When Paul started telling me about the framework back in late '16, early '17, being a nerd, being a former consultant, being Harvard Business School grad, I was just like, "Oh Paul, can I see the data models behind this?" And when he shared them, it blew me away. It was that moment that I think some of us get in our careers where we lean forward and we're like, "Oh wow, I feel like I need to do something here." Because for the first time ever, and I have looked at the SDGs, I've looked at a bunch of different frameworks-

Mike Toffel:

Sustainable development goals.

Erik Snyder:

Yeah, sorry. So, the sustainable old development goals, which were put out by the UN, and understandably a lot of buy-in, a little bit politicized, but it lacked the how for me. And for the first time we had what to do, the cost, the benefit--and the benefit in terms of climate benefit as well as the return on investment, the ROI from a financial perspective.

Mike Toffel:

Right, based on assumptions at the time of course-

Erik Snyder:

Correct, of course.

Mike Toffel:

... on learning curves and scale economies-

Erik Snyder:

Over a course of 30 years, what could happen if we were to scale this? But being a former consultant I was just like, "Any plan or strategy, Paul, without execution is just a dream. So, how do we mobilize capital behind these solutions?" And that was the catalyst of starting the Drawdown Fund.

Mike Toffel:

Got it, that's really interesting. So, you said he shared the data models with you. Can you just say, what does that mean?

Erik Snyder:

It was right before the book was published he broke through, and what Drawdown did, he rank ordered all the solutions. So, there are 100 solutions outlined in the book, and whoever wants this one is welcome to have it, because I don't really want to carry it back home. I have a ton others. But it's 100 solutions, 20 of which are coming attractions. For the business people in the room we would consider those early stage, not proven, no product market fit yet. In finance terms we think of them as seed stage or series A, but things that could be really promising but lack the data and are not yet ready to scale. So, things like hydrogen boron fusion, or use of Asparagopsis taxiformis, which is a red algae, that when you give it to ruminants, or cows and sheep, can reduce the methane. Huge, really promising, but at lab scale not ready to scale yet. There are 80 solutions within Drawdown that have the ability and are ready to scale today.

And so, Paul gave me that list. We started diving in and we're like, "Oh wow, this is incredible." We took the 100 solutions, put the 20 coming attractions aside, because Paul's original thesis was we have solutions today that can scale to make a difference. So, we focused in on the 80 solutions. Back to my original thesis around we can create systemic change through policy, culture change and movement, or business, some of the solutions within Drawdown are better suited to policy interventions. And for anyone who has been to Copenhagen or Amsterdam, you've seen firsthand how policy around bike infrastructure can transform a city's carbon footprint.

Mike Toffel:

Yeah, people don't know I think, that those cities used to be quite car intensive.

Erik Snyder:

Correct.

Mike Toffel:

They just imagine when you visit now and there's bikes everywhere, and separated bike lanes that it was designed this way, but that's hardly the case.

Erik Snyder:

People will argue that Copenhagen is the most livable city in the world. 35, 40 years ago it was not such.

Mike Toffel:

Yeah, it gives hope to other cities that were not designed with bike infrastructure, that they could imagine a future of bike and mass transit infrastructure.

Erik Snyder:

Exactly. And we're starting to see that in cities in the U.S., which is really encouraging.

Mike Toffel:

Yeah. Here even in Boston and Cambridge.

Erik Snyder:

That's amazing. So, other solutions within Drawdown are better suited, in our opinion, for culture change and movement. So, if we consider solutions number six and seven, which are empowering women through education and family planning, massive, massive, massive leverage point there, because when we empower women through education and family planning, especially in developing economies, we educate not only them but their family and their communities for generations. We decrease the number of children they have on average from 5 plus down to 2 plus, and we delay when they have children, with massive, massive implications for population growth and corresponding carbon footprint. However, in our opinion, there may be investible opportunities, and I'm sure there are around that, but we felt in general better suited for philanthropic dollars towards culture change and movement.

Mike Toffel:

Got it. And so, you're teasing apart these solutions, some for policy, some for culture change, what you're calling non-profit-

Erik Snyder:

And philanthropic.

Mike Toffel:

... and philanthropic, yeah. And then the remainder were what you thought would be potentially business opportunities.

Erik Snyder:

Yeah, we had identified 54 of the solutions within Drawdown that we felt were best suited for market-based solutions or business. Of those 54, we then went through and said, "Okay, well risk return on some of this stuff is already well-known." So if we considered, this is back '16, '17, so if we consider solar infrastructure, wind in Scandinavia, the risk return was well-known, capital was flowing there naturally already. So, we identified 16 solutions within Drawdown that we felt had outsized opportunity for both financial return as well as impact.

Mike Toffel:

Are these ones that were being invested in or not being invested in?

Erik Snyder:

Somewhat. When we looked at it, there was a gap. If we think about the business landscape and investing landscape, there's public companies and public markets where if you want to make a difference you do it through shareholder activism, and you maybe get on the board, do proxy votes and try to change a big moving organization, which-

Mike Toffel:

Very hard.

Erik Snyder:

Very hard, but if you can do it can scale impact dramatically. And then there's the private company side. We're focused on the private company side. If we think about the private company, think of any early stage business, there's a startup phase where it needs capital, it's just an idea. Then it gets to different points. It's like seed stage series A, B, C, D, and then there's buyouts and other parts. When we looked at the space, when Paul and I were trying to figure out if there was an opportunity here, we saw a lot of early stage money. We saw people investing in concepts and ideas, and a lot of family office capital and going into that space, and venture capitalists in that space. We saw a lot of big firms who have multi-billion dollar funds who need to write $100 million checks. There was a bit of a gap in that 10 to 50 million, 10 to $100 million range, which is where we play.

Mike Toffel:

So, this is going from pilot scale to production scale, or even earlier than that?

Erik Snyder:

No, it's what we would consider a traditional series C. So, at the growth stage we look for businesses that are tech proven, have product market fit as evidenced by 10-ish million of revenue. And then we look at it and say, "Okay, how can our investment help this company scale both its revenue and business, as well as impact?"

Mike Toffel:

Got it. And so, that's the niche that you decided to operate in

Erik Snyder:

Correct.

Mike Toffel:

And so, you have this 56 business opportunities, you've narrowed it down to how many?

Erik Snyder:

16.

Mike Toffel:

16.And so, now your philosophy is basically the look within these 16 channels-

Erik Snyder:

Correct.

Mike Toffel:

... for those who need this scaling in the 10 to $50 million.

Erik Snyder:

Correct.

Mike Toffel:

And that's the niche you're playing in.

Erik Snyder:

Exactly.

Mike Toffel:

Now, that was probably less occupied than it is now, I would guess?

Erik Snyder:

Correct.

Mike Toffel:

So, can you talk a little bit about how your strategy has changed over time?

Erik Snyder:

Yeah, so I would say it hasn't necessarily changed a lot over time. I think when we look at those 16 solutions, they fit within three different systems for us. They fit within sustainable cities, going back to cities, and 80% of people in the U.S. live in cities. There's a movement towards urbanization, and built environment, and mobility, and adaptation and resiliency are all things we look at within sustainable cities. We look quite a bit at resilient systems, which for us includes land and water, it includes circular economy. So, if we think about products, how they're born and go through a life cycle and how they end, that would be circular economy. And then we also look at energy. So, the 16 solutions fit in those three systems, we've had that same focus. And I think one of the things that is a little bit unique for us is we go through and we have a research insight from Drawdown.

And then we'll go through and say, "Okay, if one of the top five things we can do to reverse global warming is contribute to the reduction of food waste, what out there is being done that can do that, and where are the biggest impacts that have great businesses?"

Mike Toffel:

Yeah. So, it's problem-focused rather than technology-focused, or even sector-focused necessarily.

Erik Snyder:

Correct.

Mike Toffel:

Yeah, that's interesting. Is that unusual in the climate finance area, or is that a strategy that others now are pursuing as well?

Erik Snyder:

You probably have a better answer to that. You talk to more people than I do in that space, so what do you think?

Mike Toffel:

That's interesting. Well, it's not about me. I mean, there's so many different firms and all of them describe their strategies in a distinct way, but it's hard to actually get under the hood.

Erik Snyder:

Yeah. So, 75% of our deals have been proprietary. So they truly are, everyone in finance talks about proprietary deal, but our deals have truly been, 75% of them, have been non-competitive, research-oriented, we reach out to the company because we see a unique insight and something that could be amazing that needs to be scaled.

Mike Toffel:

Yeah. And so in this sense, proprietary, does that mean you are the sole investor?

Erik Snyder:

We are not necessarily the sole investor, but we find it and it's not a competitive process. So, if we think about going back to finance 101, when you're financing a business you might hire a banker to go out and try to drum up interest, and run a process where you talk to a ton of different people to raise capital, but we more do market maps to understand what everyone is doing in the space, and then we zero in on the opportunities we think are really interesting.

Mike Toffel:

Right. So, let's talk a moment about how you find people to do this work within your fund, because you need a lot of, not just normal finance and business model assessment, but it would be helpful to have folks on the engineering side and really on the policy side. So, how do you go about collecting the skills you need?

Erik Snyder:

It's a great question. We very much think of team building as a general manager from HBS. We think about team building as people with complementary skillsets. I can say I have the best investors and I get to work with the best people in the world, because they're all very much evolved capitalists. We see the power that the capital markets can do to drive change, but we care. So, it's a really unique blend. So, one of my business partners has 25 years of growth equity experience, and she probably has the best track record in investing in our space of anyone I've ever seen. I've got another partner who was an investment banker for 15 years in London, has literally seen every deal for the last 20 years after being a banker for 15 years in London.

He helped stand up two different venture firms in California. Another partner is deep in agriculture and industrial space. He was an investment banker, then ran a public equity portfolio, and then after business school moved to the private side in earlier stage. So, everyone in my background is very much more as an operator and entrepreneur with some investing as well. So, it's very like complementary skillsets across our sectors and domain.

Mike Toffel:

Got it. And who's giving you money? We haven't talked about that side of the-

Erik Snyder:

Most of our investors are high net worth institutional quality family offices. So, we've got an amazing group of, so far it's been 65 different LPs that have been very, very supportive, and enabled us to do this work.

Mike Toffel:

Yeah. And are there geographic clusters in terms of the families, folks from say Northern Europe who live in a culture where they see climate change as more important culturally?

Erik Snyder:

No. So, they've been families largely from our network, and people who have known the partners at various points in our career.

Mike Toffel:

I see.

Erik Snyder:

As a newer firm, we don't have 50 years of brand recognition, so it's a little bit harder to go out to people with whom you don't have a relationship. And now that we have a track record, now that we've deployed capital, it becomes a little bit easier to have those conversations, and I head actually over to Europe next week to have some conversations.

Mike Toffel:

Got it, got it. So, one of the things that's interesting about the way you compensate your team is through this impact-linked incentives. So, there's been the lore for many years that if you want to change manager's behavior at operating companies, that you try and put into their comp, their compensation, something to do with the environmental elements of their behavior, now more climate. You tend to hear about that more within the operating company side than you do in the financial side, but yet that's what you're doing. So, talk a little bit about how that's gone over with your folks, and what metrics you're using.

Erik Snyder:

Yeah. So, taking a step back for everyone in the room, if we think about how investment firms, at least on the private side are typically compensated, you have a 2% usually of what's called a management fee, which is the money you get to basically keep the lights on and employ the team. Then you have an incentive carry, which is a carried interest, which is usually 20%. And it varies depending on the firm, but it's usually around 20%, which is what you share in the upside of what you've invested in.

Mike Toffel:

Right. So, 20% of the profit essentially.

Erik Snyder:

Exactly. So, we have a deep belief that if we don't change incentives you don't change behaviors, and if we don't change behaviors you're not going to change outcomes. So, when we took a step back and looked at it, we said, "Okay, well the extractive mentality that got us into this problem is not going to get us out of it, so we need a new approach."

So if we go back to those 16 solutions, those 16 solutions have the ability to sequester about 170 gigatons over the course of the next 30 years. That is roughly 22 parts per million, or 15% of humanity's need. So, we're really focused on very, very impactful solutions to begin with. And then, just like people in finance will go through and do an investment memo and financial model, we go through, and we write an impact memo and have an impact model. That impact memo and model is obviously based off of what we work in conjunction with the companies, and it becomes a resource for them to talk about the impact they're having in the world. But we also have that audited by the leading experts in the space, and reviewed, and that is how we set our carry. So, we do it on a bespoke basis with each company on the impact side. So, it's all keyed off of financial return, so it's that 20% profit. 50% of that is held in escrow until we see what happens from an impact perspective over our whole period.

Mike Toffel:

Interesting. So, it's a little bit like a sustainability linked bond…

Erik Snyder:

Correct.

Mike Toffel:

... where you get a different, in that case cost basis, in this case revenue basis, based on predetermined sustainability metrics.

Erik Snyder:

Correct. And if we don't hit it, so if our goal is X and we hit 80% of X, we get paid out 80% of that portion of the carrying interest. Now, that delta does not go back to our LPs, but it goes into other solutions within Drawdown that are better suited for culture change and movement, or philanthropic dollars. So, basically saying when we make an investment, if we can't create the intended impact, we will take our carry dollars at no risk to our LPs to create said impact.

Mike Toffel:

Interesting. What's a metric from an investment that you're comfortable talking about?

Erik Snyder:

Yeah, so one of our investments, and maybe we'll even pull back a step earlier to talk about our process going back to the research framework.

Mike Toffel:

Great.

Erik Snyder:

So, if we can increase ridership in mass transit by roughly 20%, you'll have a 10 to 15 gigaton benefit to humanity. Pretty amazing. Who showed up here today in mass transit? Awesome, two people. But if we think about it, the data shows that the reason that a lot of people don't use mass transit is because it may not be reliable, it may not be close, it may not be safe. And if you don't know you can get from this place to this place on time for your meeting, or for a brilliantly executed podcast, you're not going to use it. So, when we look at that space we said, "Okay, well what else is out there that doesn't require a ton of policy or capital investment by governments to build infrastructure for mass transit? Are there solutions out there that can make mass transit more reliable and safer?"

Did a big market map, studied it. And the way that a lot of that happens is through going to trade shows or looking at attendees, seeing what's happening out there. And we came across this company called Hayden AI, and what Hayden is, it is a hardware and software company that has two different cameras that go behind the windshield of a bus. And what their secret sauce is, they have artificial intelligence that can identify and overlay policy to geospatial data. Said simply, they can identify when there is a bus stop, or bus lane, traffic infringement. And then they record the snippet of what's happening, it gets sent to the cloud, goes to the violation processor. In New York's case, that would be company called Verra Mobility, and then the person will get a ticket.

Mike Toffel:

So, this is when folks are parked in bus stops illegally or in a bus lane illegally.

Erik Snyder:

Correct. And what we have seen in Hayden is that they have had a direct emissions reduction in New York. New York MTA was their first customer. They had a direct emissions reduction on the buses, because they, after six months of being deployed, they started changing people's behavior and people were getting out of the bus lane. So, they saw a dramatic decrease in fuel consumption and emissions. They saw buses, who were previously late are now early, and they saw a massive decrease in excess of 30% of collisions, because buses are no longer having to veer outside of a lane to get back in, and getting clipped on the back. And if we think about a lot of mass transit, it's also social justice as well, because a lot of the people who need mass transit don't have any alternative, but now it's going to be the most efficient way to get from point A to point B as we have more and more people moving into cities.

So, it becomes not only an amazing direct emissions reduction, so when we look at it we look at it from a direct emissions reduction, back to your question, of how many buses is this deployed on, that's linked to a direct emissions reduction. And then there's a bunch of other things that will be icing on the cake for which we don't get benefit, such as making cities more sustainable. Because when you identify where all these traffic infringements are taking place, that becomes a really interesting piece of policy data for city planners. You have a heat map. Now all of a sudden we're seeing a ton of tickets being issued here. Well, all of a sudden that could be because a new building just went up and there are 800 new families living right there. So, we need to do a loading zone, or we need to think about rerouting-

Mike Toffel:

Right, or adjusting the traffic lights.

Erik Snyder:

Adjusting traffic lights.

Mike Toffel:

Right. So, this sounds like this has several benefits, some of which you capture, some of which you don't. You don't capture necessarily the health benefits of those living around bus stops that used to be congested, that now are less so. But you do capture the fuel efficiency.

Erik Snyder:

Correct.

Mike Toffel:

So if you think about it, emissions per bus mile, that's a key metric.

Erik Snyder:

It is.

Mike Toffel:

And the second level benefit is as buses become safer and faster, one's hoping for more riders-

Erik Snyder:

And we've seen in New York, as the first customer, we've seen a massive, over 30% increase in ridership in New York. So, we've seen that. So, that is the other major metric we use as it relates to our impact carry is increased ridership.

Mike Toffel:

Yeah, so that's like passenger miles per system, or something like that.

Erik Snyder:

Yep.

Mike Toffel:

So, you'd have these metrics of either fuel per mile or fuel per passenger-mile, and then that's what I imagine the bus company or a municipality would be looking at. How do you translate that into these incentives for your partners?

Erik Snyder:

Yeah. So we basically say, "Okay, we believe that this company will grow this much, deployed into these many buses," or depending on whatever the company is, but in Hayden's case these number of buses, and that will create increased ridership of X and reduced emissions of Y. Everything for us is tied back to CO2 equivalent emissions reduced or sequestered, depending on the segment. And then we set that in stone. And then we assess that at exit over our whole period, because we can't control anything beyond it, and we're not going to try to project out and say, "Oh, if we had another 10 years they would've had the impact. We should definitely get paid," because that's not what we're trying to do. We're trying to have near-term impact, as very much part of our thesis is investing in businesses that can scale and have near-term impact. So that's when we assess, "Okay, it was deployed on X number of buses, this data remains true," and it goes to get validated by a consulting firm than audited by our auditors.

Mike Toffel:

Got it. And by using CO2 equivalent, it gives you more benefits per ton of methane than per ton of CO2, because methane has a much higher greenhouse gas impact per ton.

Erik Snyder:

Yes.

Mike Toffel:

Got it. So, let's talk about another example. I know that another example of an investment that you've made is in the food and ag sector in Mori.

Erik Snyder:

Correct.

Mike Toffel:

Can you talk through that one a little bit?

Erik Snyder:

Yeah. So if we look, going back again to the Drawdown framework, one of the top five things we can do to reverse global warming is reduce food waste. There's a lot of different ways to intervene in reducing food waste. I'm going to throw out a cold call here. Everyone, just think for a second. How many years does it take for a head of lettuce to decompose in landfill? Ah, we got answers in the back.

Audience member #1:

I would guess it's like decades?

Mike Toffel:

Decades is the guess-

Erik Snyder:

Decades. Leave it to an HBS audience to actually get it right.

Mike Toffel:

Oh, nice.

Erik Snyder:

It takes about 25 years, and that's usually shocking to people. Very, very rarely do you have such an informed audience.

Mike Toffel:

Self-selected to a climate discussion.

Erik Snyder:

But if you think about it, not only does it take 25 years but when, going back to your comment, when it does decompose it turns into methane, which is roughly 80 times worse in the atmosphere than CO2.

Mike Toffel:

Because it's an anaerobic process, it's buried in the landfill.

Erik Snyder:

Correct.

Mike Toffel:

Yeah. As opposed to it just being laid fallow in your garden or in a lawn.

Erik Snyder:

Correct.

Mike Toffel:

Yeah, okay.

Erik Snyder:

And roughly 30% of food doesn't make it from farm to fork. We actually have enough food in the world to feed everyone, but there are logistics issues and food going bad along the way. So massive, massive issue, huge climate implications.

Mike Toffel:

So the challenge in, that I've always heard in food waste, when you hear this 30% you're like, "Wow, there's a pile of rotting food or grain somewhere, and somehow people are leaving money on the table." But as I understand it, that 30% is a bunch of little drips, where in each case the economics are such that it's just easier to waste it than it is to recover it. And so, that's what makes this challenge so hard because not a 30%-

Erik Snyder:

In one place.

Mike Toffel:

... in one place, it's like little bits along the way. Is that right?

Erik Snyder:

It is, and I would actually take it a step further. It's not only little bits, and the little bits are for different reasons around the world. So, if we think about developing economies who don't necessarily have cold chain storage, and don't have the ability to get food from the farm to the market before it spoils, that's a very, very different problem then the food waste in the U.S. So we took a step back and said, "Okay, massive issue." As you mentioned, Fragmented problem. And then we took a step back and said, "Okay, where are the different places you can intervene or make a difference here where there might be a viable business?" There are businesses that looked at cold chain storage, there are businesses that are post after harvest, so what's called post-harvest, trying to extend the shelf life. And that's where we felt there was a big opportunity. And then within that, there are a bunch of different companies doing different approaches to that, and we came across a company here in actually Boston, called Mori. They utilize a protein, a silk protein that basically creates a cocoon around the food. So, if we think about the three main reasons food goes bad, it is because of moisture exchange or dehydration, it's because of microbial growth, or gas exchange. And Mori is able to create essentially a silk cocoon over a piece of food. It is odorless, colorless, and tasteless. You don't even know it's on there, it's a very long protein and long molecules, so it can be put on very, very easily. And we found this company and we were like, "Wow, this molecule is incredible." It was being commercialized in tender leafy greens, so things like spinach, and chances are if you have had tender leaf or spinach in the Northeast, it was probably treated at some point in the supply chain by Mori.

Mike Toffel:

Wow. So, this is therefore already an existing technology, already approved by our regulatory authority.

Erik Snyder:

Yep. It is actually really fascinating. Silk has been in human consumption for years. The Medici's were actually silk farmers. And so, in a lot of places like Europe and Canada, it was considered a non-novel food product. In the U.S., it obviously went through all the FDA Generally Regarded As Safe. It went through all those steps, and food safety, there are absolutely people in the audience who have a lot of expertise in food, but food safety and the processes around that are very stringent and pretty strict.

Mike Toffel:

Yeah. So, was this already commercialized by the time you invested in it?

Erik Snyder:

They had a commercial partner, and then it was tech proven with very clear product market fit on its first vertical, and we saw the opportunity for it to go into a bunch of other verticals as well. So, while the first market is tender leaf and leafy greens, where they're scaling today pretty dramatically, the blessing and the curse for this company is that it has been shown to work on literally everything. So, from a piece of paper all the way through cut pineapples. So, it's a great business school case problem, which is when you have a product that can have a huge impact on absolutely everything, how do you think about go to market? How do you think about where you go next?

Mike Toffel:

Yeah. I mean, I would imagine you have a two by two of profitability on one side and impact on the other.

Erik Snyder:

Well, I also think in the simplest way yes, but then you also have to think about the archetype of the customers, and are they huge, massive conglomerates that are getting tied up in the bureaucracy? I think across the board within climate, one of the things that we found is that the biggest competitor to any business we're going to invest in is the status quo.

Mike Toffel:

Yeah, status quo bias in particular, right?

Erik Snyder:

Bias. Yeah.

Mike Toffel:

So, let's look forward a bit in the climate tech finance space. How have things evolved today, and where do you think things are evolving in the near term? And let me link into that advice for those who are interested in getting into climate finance, where you think the opportunities are.

Erik Snyder:

Yeah, so going back to the drawdown models, we need $27.2 trillion to reverse global warming over the course of the next 30 years.

Erik Snyder:

to scale the 80 solutions that Paul originally outlined and published in April of '17. And it's evolved since then-

Mike Toffel:

And that would get us toward a what degree world?

Erik Snyder:

Depends on…

Mike Toffel:

…the models…

Erik Snyder:

... the models, but it also depends on how quickly. Because just like we have the net present value for a financial model, there's a net present value of carbon. So as scaled, it gets us to the point of drawdown, which is the name of the book, which is the point at which we are no longer emitting more than we are sequestering. So looking at that, and if that is your framework, it's basically we need every dollar from the capital markets, from institutions, from governments to contribute to this. I'm absolutely encouraged by the fact that when we started this journey in '17, '18 and start building the firm, there was no one really else at the growth stage.

We still need a lot more money there, we need more money at every stage. So, to people who want to get into climate finance, the first thing I would say is find an area in which you're passionate, and even if you're not in finance, find something that you're passionate about. Because every job over the course of the next 30 years is a climate job, to be very, very clear. It is the single biggest opportunity that I will see in my lifetime, it's larger than the industrial revolution, and has to happen faster than the digital revolution for humanity's sake. So there's an opportunity, whatever you currently do or whatever area you feel like you have passion in, that too can be a climate job.

Mike Toffel:

Yeah. So, drawdown by its nature is about mitigation or carbon sequestration. One hears less about climate finance in the adaptation space. And I think back when Paul was getting started, it was an era where people talked about mitigation didn't really want to talk about adaptation, because that was perceived as throwing in the towel. Or it was like a dirty word almost. But now, unfortunately we're in a world where we need adaptation. We know that. And adaptation funding is beginning.

Erik Snyder:

It is.

Mike Toffel:

A lot of it's more municipal or government oriented, but there's lots of private sector opportunity as well. That's not an area that your firm is expanding into, or is it?

Erik Snyder:

No, we are. And we see it, adaptation, at the intersection of land and water. So, for those who are not familiar, the idea that climate change is occurring, more frequent storms, we're all seeing it, what was once a future existential threat is now real and today, current. And then how do we think about changing or adapting products and seeds to that higher temperature? So, that's the sector we're talking about. I also think that adaptation can work side by side with mitigation as well. So, one of our investments is into a company called Source. If you think of what a solar panel is, what a solar panel is to distributed energy, a source panel is to distributed water. So, it takes air through a water absorbing material, and then it goes into a reservoir.

And it's the lowest cost potable water in the world. Period. It's not less expensive than what we pay in developed economies, but we don't pay the true cost of our water for water infrastructure. But it's less expensive than bottled water, it's less expensive than trucked water, it's less expensive than the GDP cost of people fetching water. And it's an amazing way when we are facing droughts to adapt to a new normal. The company is based in Scottsdale, Arizona, so it does work in arid environments as well. But that is very much an adaptation investment, but it's also a mitigation investment. Because if we think about the carbon footprint of pumped, trucked or bottled water, it's absolutely enormous. So, not only is this an adaptation, but it's also a mitigation investment as well.

Mike Toffel:

Fascinating. Well, let's take some questions from the audience. You've come from all over the world to be here to see Erik, go ahead.

Audience member #2:

Yes, hello. Personally I have about 20 years in renewables, and one of the difficulties is anticipating what government policy is going to be. And I'd be interesting to know how you can factor that. How do you know? Because it's very much a roller coaster.

Erik Snyder:

I don't think you can know. So, we think of it from a, is it a stable policy environment? Like solar tax credits, that's pretty stable. Hopefully, it's been renewed a bunch of times, at least in the U.S. Or is it something that for our investments could be icing on the cake? So, if we got to a dividend or a price on carbon, that would be amazing, but we don't take that into our consideration for our underwriting because it's not set. Yes, there are environments where that occurs. So for us, we just say, "Is this a stable policy environment, and are we reliant on this for this deal to be successful? Are we reliant on policy?" And if we're reliant on policy, we may not move forward.

Mike Toffel:

Question in the back. Yeah.

Audience member #3:

One of our prerequisites I think, to succeeding in all of this is a thriving natural world. We haven't talked as much yet about nature restoration and thriving ecosystems. So, would just love to hear a little bit about how nature fits into your strategy.

Erik Snyder:

Yeah. So, nature is a huge part of the solution, for sure. In terms of our strategy, I think we are looking at it from the perspective of a lot of people are now talking about natural capital solutions and natural capital investment. There's also a really, really broad definition of what that is. People include land, farming, agriculture, and that we don't. So when we look at it we say: Natural capital solutions are more some of the amazing work that The Nature Conservancy is doing under Jen Morris's leadership. And there's some amazing work being done out there to restore land, to protect land. Other than a couple different investment opportunities, we have not seen a lot yet on that stage. There's a really cool company that is utilizing drones. They are vertically integrated, they have seeds, seedlings and are doing fire land restoration, utilizing drones to plant seeds and seedlings. That to me, would fit into the natural capital restoration investment, but we have not seen a lot of opportunities there yet at the growth stage.

Mike Toffel:

Yeah, go ahead.

Audience member #4:

Somewhat selfish question, because I'm a regenerative farmer myself now, but do you invest in that space? What have you looked at in that farming/agriculture space? And if so, what have you seen that's most exciting?

Erik Snyder:

Well first off, thank you for what you're doing. That's awesome. Within farming, it's tough, and I think there's ... You know better. But if we take a step back, a lot of farmers are sold snake oil. They're told this, they're told that, and I'm going to throw it out there because if anyone's looking for a business idea, it's one that we will eventually back once you can scale. I think one of the things that we need, and one of the levers we have to make broad change regenerative farming scale, is around insurance. So, how do we think about crop guarantees? So in finance, there's something called a J-curve. So, the period at which you're not making money, you're losing money, when you transition to regenerative farming. I'd be curious, did you have to let your fields lay fallow?

Audience member #4:

It's a decade long J-curve.

Mike Toffel:

Right, decade long J-curve.

Erik Snyder:

Exactly. So, how do we think about the right form of capital that can be patient, that can help support that farmer through that long J-curve, and then share on the upside as we transition from conventional to ... And there's an amazing business opportunity and insurance there if someone's willing to do that, if we can find the right patient long-term capital. But in terms of your direct question around agriculture and what are we doing in agriculture? There's a really cool platform, I think it's called Steward that we looked at, that was still too small for us, but they are helping support farmers and give them the tools to transition, and a direct-to-consumer platform to be able to sell their products. So, we're looking at things like that. We are looking at seed coatings, we are looking at biologics, we are looking at a broad range of different things. I think that space for scaling is really, really challenging, and farmers are sold a lot of crap so they are suspicious, and getting them to change their behavior ... This is actually really fascinating, back when I was on that journey of talking to 150 people around the world, I went and saw some regenerative farmers. And as you've probably experienced as a farmer, there's a difference between dirt and soil. On one side of the road, this beautiful soil with a ton of organic matter, it was incredible. On the other side of the road, dust. Two different farmers, one road, different practices. Talking to the regenerative farmer, I'm just like, "How has your neighbor not made a change?" And he's like, "You want to laugh? That's my cousin." But there's that tendency to do what they believe their parents did, and they're told so much different stuff that it's really, really hard to change behavior there. So, not a great answer, I'm sorry. We need more people like you, and if there are ways we can support you through scalable capital, let me know.

Audience member #4:

Patient capital is the key. It's hard to do it when you need to feed your family with cash flow tomorrow.

Erik Snyder:

Exactly. Which is why I think anyone who wants to do that insurance play, it's a great business opportunity.

Mike Toffel:

Yeah.

Audience member #5:

It sounds like at the outset of the drawdown, you had 16 areas where you thought businesses could be a good fit. Are there anywhere you've been surprised at how few investible business opportunities have come your way?

Erik Snyder:

Yes. Well, I would say there are some areas where we thought we'd be seeing more things, and we tend to invest in CapEx light, so not really heavily capital investment businesses. We thought there may be more opportunities around battery storage. There are great opportunities out there in battery storage, and one of our section mates is involved in that space, and there's some amazing, amazing companies out there. But because of the characteristics of it, I incorrectly thought that that was going to be a place where we might be able to invest and we haven't been able to invest there. Similarly, in the energy sector we have found things that are more enabling technologies. So, one of our investments is into a company called Arcadia. Arcadia does billing and services and customer acquisition for community solar. So, we found businesses like that. But that was actually a surprise to me when I set out. I did not necessarily anticipate, or maybe I didn't understand the dynamics around battery storage and what that would take.

Mike Toffel:

Can you say a little more, why did battery storage not fit your investment thesis?

Erik Snyder:

That the amount of capital, it's a super hard problem. And we should plug our session mate, Ted Wiley in from Form (Form Energy). If he was in this room, I surely would cold call him right now. But it takes a really, really long time, it's really hard technology. It takes so much money and so much time, but the opportunity is so large that by the time that they are ready to scale, they need hundreds, and hundreds, and hundreds of millions of dollars. And our $10 to $50 million check just doesn't make sense. So, we have a timing issue for us where businesses are, for us we have to have a board seat. We tend to have an observer seat as well. If we can't add value, we don't invest. So, with a check size of $10 to $50 million, it limits the round sizes that we can participate in. So a lot of these businesses are, their capital needs are so much greater than what our $10 to $50 million check can do.

Mike Toffel:

Great.

Audience member #6:

Do you have any view on the recent policies, like IRA, GGRF, and do you think they could move the needle at all? And do you anticipate any additional policy support in the U.S.?

Erik Snyder:

I think one of the big takeaways from Drawdown is that we need a portfolio approach. We need people trying to do everything wherever they can. We have a huge sum of money that needs to go into reversing global warming, and it's a function of policy working with private sector, working with individuals as well. So, the very easy answer is I welcome it, and we need more of it. What is a little concerning to me candidly, is that people who don't necessarily understand the implementation of it are like, "Oh, there's going to be huge tailwind here," and it's short-term capital. Back to your comment around patient capital, this is a hard thing to do. This is hard technologies. If we go back to clean tech 1.0, $1 in results in 50 cents coming back out. Somewhere around there. A lot of people lost a lot of money because we didn't have capital at every stage in the system. It was venture capital dollars who didn't necessarily understand how long this would take, we didn't have people to fund at the growth stage, we didn't have the late stage investors, we didn't have the government catalyst then. So, we need everyone playing its role. So the policy, any and all policies, as long as it's not being turned around in November, would be absolutely welcome.

Mike Toffel:

Great. Any closing thoughts? Things that we didn't cover that you want to share with our listeners?

Erik Snyder:

This is actually something that I very explicitly remember from Clay Christensen back 15 years ago, which is: how we spend our time is a clear indication of our priorities. So, if we think about trying to make the world a better place for the next generation, of which we have some kids here. I couldn't look my kids in the eye without trying to do everything I can to try to make a difference. And I think just in general, we all have that opportunity in small and maybe larger ways. So, I would just ask and encourage everyone to think about how they're spending their time, and what actions they can take in very, very simple ways to start contributing, because it's the actions of the few that become the many that can actually make the change.

Mike Toffel:

Great. Well Erik, thank you so much. Really appreciate you spending your time with us. [Applause]

That was my interview with Erik Snyder, Founder and CEO of Drawdown Fund, recorded during a recent HBS alumni reunion.