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“You did very well, Mr. Netherton,” she said. “I scarcely did anything.” “Opportunities to do very badly were manifold. You avoided them. The major part in any success.” – The Peripheral, William Gibson
How are we doing? The financial answer is reflected in our (good) fund financial reports. But what do our planetary impacts look like across our portfolio? To answer in detail, we’ve started on our 2022 impact report. The opportunities to fail at impact (and impact reporting) are many, so we’d love to hear what you think. Here’s our DRAFT Third Sphere 2022 Impact Report.
Climate, Geopolitics and Stuff Food and energy crisis threatens to distract from climate talks. That’s a recent headline from the Financial Times. Climate action is not going to succeed if it means always paying a premium to replace incumbent options. Successful climate action looks more like classic technology disruption, a re-imagining of nearly all human systems to options that are better, faster and cheaper. And yes, compatible with our planet. As if to really drive home that point, here’s the IEA explaining how the energy crisis might be the historic turning point for rapid decarbonization.
The energy crisis is a reminder that customers may talk a lot about climate but usually make purchase decisions for other reasons. As if to make the point for us, Easyjet is ending their carbon offsets program in favor of more direct actions that cut emissions. Importantly, these actions are also likely to improve the economics of their core business. We continue to see customer discussions shift from loud commitments in 2021 to choices that result in core business impacts of faster, better and cheaper. It’s climatetech. But it’s also classic tech disruption. This was our starting premise in 2013 when we started Third Sphere, and we think this is the reality for the coming years—outside, perhaps, of younger people, who are more urgently and seriously changing their behaviors and purchase decisions.
The majority of our investments are in climate mitigation, but about 25% are in climate adaptation. The main reason most investors have avoided this area of climate investing is that many believed we might be too early or— potentially worse—capitulating. After all, a few years ago, the effects of climate change seemed mostly to only appear in IPCC reports. Not anymore. Climate risk is now being counted in lives lost and costs to rebuild. Pakistan’s floods literally have redrawn the map of the country. In Florida, home insurance rates are increasing by 33% as insurers recalibrate for more frequent and more destructive events. Republican governors are trying to punish financial institutions making climate-risk-based investment decisions such as fossil fuel divestment, but it’s very unclear how to force insurers to take on risk. Eventually, the risk will be shifted to taxpayers. And then we’ll start the real conversation about the costs of climate change.
More Deals. More Bad Behavior. We’ve seen a massive surge in startups building a better world for everyone, even as they stand to deliver fantastic returns for shareholders. We estimate a 30% increase in startups we’ve reviewed versus 1H 2022, and that’s just for venture fundraising. Credit is up substantially more, but some of that is founders either struggling to raise equity or trying to avoid flat or down valuations.
One of the hardest startup trends to witness over the last few months is value destruction as a result of inexperienced investors unable or unwilling to support founders as they adjust to new market norms. Sometimes this has meant badly fumbled M&A processes or painfully slow bridge rounds. Our biggest regret is not pushing back more when founders said “I know this is a new fund, but they seem cool and smart and they offered the best terms.” So many people want to invest in startups, but not all of them sign up to do the work and be there when things get hard. We’re in the process of recalibrating after a period in which it was too easy to be a VC.
Fortunately, there are now more ways for founders to avoid bad investors or even NPCs (not sure what this is? Ask someone who plays video games). We find ourselves sharing a growing list of venture investor rankings like NFX Signal or Founders Choice or Climate 50. If a VC partner is not highly ranked, at least on some lists, it’s worth asking why.
Opportunities There has never been a better time to apply your skills to planetary scale problems. Don’t believe us? Here are some of the positions currently open with Third Sphere portfolio companies:
State and local policy lead or manufacturing process engineer at Chewie. Electric vehicle operations manager or sales coordinator at Circuit. Bike mechanic or B2B sales manager at Cycle (fka Henry Mobility). Operations assistant (Cape Town) or embedded systems engineer at Plentify. Flight technician – Stratospheric Balloons or content writer at Near Space Labs. Verification engineer or director of manufacturing at Resonant Link. High performance building director at Cove Tool. General manager of R&D operations at Bowery Farming.
We’re sure Fed Chair Jerome Powell is unhappy because Third Sphere Portfolio companies now have 408 open opportunities across 68 companies. Sorry not sorry.
Portfolio News We’re excited to share two new investments. Earth Force is tackling wildfire risk by working to massively reduce the cost of vegetation management. Wildfires tend to be thought of as a climate adaptation risk, and they are driving up insurance costs, but it turns out they’re a real emissions problem too. For example, California’s 2020 wildfires negated years of emissions cuts.
Renewell surprised us with a gravity energy storage approach where the math works! They’re reusing a massive piece of existing infrastructure—retired oil and gas wells along with the various poles and wires that connected them to the grid. The price point will compete with lion batteries but comes with the flexibility to do seasonal storage too, so we can more rapidly unlock the cheapest power generation in history from solar and wind.
There is lots of news from our portfolio companies. We were excited to see two Third Sphere founders on Inc’s Female Founders 100. Congrats, Shilla (Thrilling) and Sandeep (Cove Tool)! Forward launched officially (formerly Livestories) to help local governments be much more responsive in the face of emergencies. This is also likely to be one of the best case studies on how empathy can lead to deep, impactful startup pivots.
Onewheel riders have now ridden more than 100 million miles. And Kiwibots now seem to be on almost all university campuses. Gradient won a contract for 10,000 of their self-installed heat pumps from NYC’s housing authority. Bumblebee Spaces’ robotic furniture is now available directly for purchase. Flair wrapped up their series A raise to continue making HVAC systems smarter, and Circuit raised their series A to expand their electric public transit services across the US.
Phuc Labs is raising on Republic to use machine visions to quickly and cheaply separate precious metals for applications like mining and battery recycling. UpShift is on Republic again too, raising to scale up their EV fleet. And Blokable may just have cracked the code on prefab multi-story buildings. If you’re at Greenbuild, it sounds like a mouthful, but it’s worth checking out Decarbonizing Multi-family Development: Actionable Pathways to GHG Emission and Building Cost Reduction with Industrialized Construction. Part of their series B will be accessible on seedinvest. Third Sphere Updates We’re also excited to be working with Sam, Annalisa and Elias as part of our fellowship program. They’re helping us evaluate new investments. Sam has been building techno economic models for projects from energy storage to new planned communities like Culdesac. Since completing an MS from Columbia in Sustainability Management, Annalisa has been focused on deployment of EV charging infrastructure. And Elias is wrapping up at Berkeley Haas School after working with British International Investment focused on investments in Asia and Africa.
Finally, welcome Rean. We first met through Roscel, whom some of you have now met. Rean has built out programs for PwC in the Middle East and most recently led a team of remote executive assistants for Athena. Rean will be helping us scale team support via Sync and build additional capacity for our analytics and reporting.
Best, Third Sphere Team
Reminder WK 454 refers to the number of weeks since we first started sharing these updates. Yeah, we really are coming up on nine years. It reminds us of how little time we have in which to act.
How did we create this update? The content comes from our slack channels where we review contributions from people like you. So you can wait for this newsletter or join us on Slack. You can find our previous updates here.
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