Climb By VSC: Episode 37

Published July 12th, 2023

David McColl is currently the Executive Director of Stanford Climate Ventures and is a Graduate Research Fellow at the ⁠Steyer-Taylor Center for Energy Policy & Finance⁠. He is also a Partner at ⁠Echelon⁠, an early-stage venture capital firm, and its affiliate Shoreline Capital. David received a B.S. in Management Science & Engineering and an M.S. in Energy Resources Engineering from Stanford University. He is a nationally-ranked beach volleyball player.

From 10 Grad Students To Full On Climate Venture Launchpad

Jay Kapoor: Hey climbers, welcome back to another episode of climb by VSC. I am thrilled today to have David McColl on Climb. David is currently the Executive Director of Stanford Climate Ventures. SCV not to be confused with VSC, and he's the Graduate Research Fellow at the Steyer Taylor Center for Energy Policy and Finance. He's also a partner at Echelon, an early-stage venture capital fund and its affiliate Shoreline Capital. David, you're doing some really awesome things. I'm so thrilled to have you on the show. Thank you so much for joining us.

David McColl: Yeah, Jay. Thanks for having me. It's an honor and you've had some great friends of Stanford climate ventures on this podcast before so I'm excited to talk about it.

JK: Yeah, well, we've heard them sing your praises. And so we're excited to actually have the legend with us here in the flesh. So let's start David with some of the origins of Stanford Climate Ventures, and maybe share a little bit of the scope of your work as the executive director of the program.

DM: Yeah, definitely. So everything about Stanford climate ventures and kind of the students and the companies that have come out of the class is built on the foundation that Dave Danielson built and Dave Danielson built. He's a managing director at Breakthrough Energy Ventures, which is a large climate Investment Fund. And you know, he's a legend in space. His companies are Redwood Materials, Form Energy, Furbo Energy, Lilac, Cobalt, like the list goes on and on. He's just one of the best in this space. And I think he would say the way that he's gotten there is through the communities that he's kind of built-in climate and energy. And so it kind of all started when he was a grad student at MIT in material science. There were all these different things going on around campus related to energy and climate, but not a lot of coordination between who was working on what, and so as a grad student, he figured out how to get everybody together and just talk about what they wanted to work on. And you know, he was doing that by just buying pictures of Coors Light for people at the mighty Charles pub and just creating a social cohesion for people to come together. And that turned into the MIT Energy Club, which is now kind of the biggest energy club on any college campus and has, I think, you know, 1000s of of people every year coming through it. And then from there, he went on to be employee number one in founding ARPA E, which is kind of the government's version of bringing all these people together to work on parallel sets of targets together, and he got pulled over to Stanford and said, I want to go do what I've done building these communities, and you'll build it at the number one destination for entrepreneurship, which, which was Stanford at the time. And there's kind of a natural, a natural tendency for people who want to go build big things to go there, and they've kind of said if I can build the community and bring the playbook for starting these companies to there, I think something special could happen. So, in 2016, he came over to Stanford and did the beginnings of what is now Stanford Climate Ventures. It looked very different at the time, it was kind of a couple of grad students hanging out in a room, and not many people are interested in 2016-17. And that went from 10 grad students in a room talking about nerdy energy stuff together to some really amazing companies that came out of that first cohort. Companies like Furbo energy, we've grid, they TriCity guide wheel ones that we've heard of today. And it's nice because now their success stories but it was all built on. Dave is just saying how can I bring people together and give them my network and my playbook for starting these things. We now have about 200 students that come through the class every year. Mostly grad students, about half Ph.D. and Master's in different engineering degrees, and about half MBAs or law students or something like that. Of the 84 projects that have gone through the class, 45 of them have turned into companies that have raised over half a billion in funding and employ something like 300 people at this point. So it's been a great Launchpad, but it's all kind of built on just the community aspect of how we can bring everyone who's fired up about this together on the same team?

JK: Yeah, I love that story. For a couple of reasons. David's because I started my venture career at an accelerator, so I started TechStars in New York, back in 2015, in 2016. And that idea of community, I think, is so powerful, because a lot of founders would come into TechStars, I think for a host of reasons, you know, they wanted some content and education around company building. They wanted to build their network, you know, with VCs who would fund their company and I think to a person, if you ask them after the sort of three-month program, what they got the most value out of it was the knowledge sharing amongst all the other founders that were in the group, let's say 15 founders, you know, one would be building b2b One would be building b2c, but ultimately it's the sort of basic aspects of company building that they were sharing from each other's experiences. That was actually the accelerant. You know, even less so or even more so sorry, than somebody coming in and saying, hey, here are 10 investors for you to meet. All that stuff is there, but that community I think, is what stays so long to the point where a lot of us still get together, you know, for drinks seven, eight years later, at different phases in our company building careers. It's still very, very strong. So I love to hear that community was sort of the center of it. How did you find your way there? What brought you to doing this work now here at Stanford Climate Ventures?

DM: Yeah, so I've been in the energy space, both in the startup scene and at a big energy company and I came back to Stanford to do my master's in energy engineering around the same time that Dave was launching this class. So I actually was a master student in that one of the first iterations of Sanford climate ventures it was called something else back then it was an energy transformation collaborative, but it was, it was the same idea. And so I took that class and led a project through it that ended up not being the right technology for that market. So I didn't end up turning it into a company but I saw how special of a community that Dave and Joe were building at the time. And to me it was mostly just those were the people that I found myself hanging out with around campus, right the people who wanted to nerd out on energy and climate stuff and this was where they were hanging out. And so I saw that this was kind of the focal point for where a lot of them were gathering and I wanted to help build that. So I helped with a couple more projects that went through the class throughout the rest of my masters. And from there when I graduated I went into the venture side but I was also still there helping just organically grow the community and also to surround them with all of the people that we know in the climate and energy world. And one of the one of the big things about this class is when you're going through with a project, we we require them to do 70 to 100 discovery paths with people that are in the real world working on these things that can that can lend insight to really pressure test what their idea is and sort of iterate back and forth between taking it into into the classroom and then going out into the real world. So now my role as the executive director is to kind of run the whole platform and mostly to build that network around the class

JK: As somebody who's been in and around. I'll call it climate venture or climate innovation for so many years. How have you seen the needs of founders change? And maybe, you know, contrast that a little bit. You're on Stanford's campus, we're seeing startups being built in all different categories. What is it that climate founders specifically need? At the earliest ages to really be successful?

DM: Yeah. One of the things that has worked well, is we've been able to bring in climate specific founders successful ones into the class to give their lessons right. Sanford's very good about giving the playbooks and entrepreneurship and everything but there's a couple of different skill sets that you need when you're starting a climate company. They take longer, they generally are more capital intensive. There's usually some sort of regulation involved. And one of the great things about Dave and Joe's network and Jains is they can pull in people like Jean British Nevsky of sila. They can bring in the Matteo Horomia as a form of energy they can bring in the people who have really done it in these hard to build spaces, to give the kind of specific playbooks for the kind of tools you're going to need as you're going and then we can bring in people who, who know those spaces incredibly well, right. We've got people on the policy side, we've brought in people who have scaled companies before to kind of talk about hey, how do you grow these things? How do you have a sales playbook? And the best part is we now have some successful alumni that can come back and say those specific toolkits. So Lauren Dunford, who's the founder of guide wheel, was one of the first companies to come out of the class. She now comes back and gives one of our sales lectures and aside from the fact that she just has so much energy and is so passionate about it. She's done this herself, and said how can I get as close to my customer as possible to really understand them, and translate that into what we need to build as a product. And so she comes back and gives that lecture. So there's a lot of specific tools that you need as a climate entrepreneur, that we now have kind of all of the people that have done it before coming back and giving best practices. And I think one of the things that's changed dramatically is how much capital has come into this space over the last five years, you know, in 2016 1718, when we were first doing this, a lot of those sources of capital didn't exist either on the venture side, or just everyone was using ventures the only tool and now there's so many other things both within Stanford at the earliest stages, getting grants, getting fellowships to go figure out what it is exactly. You're working on getting non-dilutive capital to get project finance as we talked about. And all of those other tools that you can use to resource your company. And so that one has changed dramatically since 2017-2018. There's a whole swath of financial tools that projects and companies can tap into that weren't there even just five years ago.

JK: I'm really glad you spoke about the sort of different playbooks that are there. So for those of our listeners who are not lucky enough to go and be a part of this collaboration at Stanford, could you share one or two like lessons or insights from from some of these guest speakers that you've had that like still stick out to you where you go, wow, I hadn't thought of it. And now I can't see the world in a different way now that I've heard these things.

DM: Tim of Furbo energy, he talks about when he was starting ferbos, a geothermal enhanced geothermal company. And in 2017, no one was looking at geothermal. And so when Tim was starting this, he would go to DC and absolutely nobody wanted to talk to him about what he was building, even though he was kind of saying, Hey, I think I've got one of the few kind of base load renewable energy sources that we can use. That is in line with everybody's vision of where they want to get to with their net, zero golf. And nobody really wants to talk to him, but he would still show up a couple times a year and just bang on the door and educate people and five years in now, there's a lot more attention around it. And he already knows all of the people, from the federal government to state governments to local public utility commissions that are working on this and has kind of those relationships and is able to educate them. So that's kind of one of the playbooks He's been teaching is how do you think about what you're going to need from a policy perspective early on, and start building those relationships far before you actually need anything to happen? And then another one is, as we talked about with Lauren Dunford, right, and her sales process, but when she started, no one really understood the vision for what she had, which was improving the energy efficiency of factories, and to really understand what the customer needed. She went to Kenya, which was where they she both had connections to a lot of factories, but also where they had factories that any downtime there was dramatically going to cut into their, their economics. And so she went out there and basically lived on the factory floors, understanding everything and realizing hey, if I can just get visibility into when these machines might go down. That's what they want as the customer and then on the back end, I can utilize that to make everything operate as efficiently as possible. And so her playbook is all about how do you get as close to the customer as possible to realize what they want? And how can you accomplish your goals through what it is they want? And now she's working on expanding it all over the US in more advanced factories that now really understand what the value add is. And so those are some great ones and then you know, some of it is just being scrappy. There's one of my favorite stories is Nico pan kowski of of Knight TriCity and they TriCity is working on kind of decentralized fertilizer production with on site renewables. And from their techno economic analysis that they did to the class they kind of realized the exact price point but they needed the onsite Stoller to be built for in order to to hit their unit economics. And at the time, he was getting a lot of quotes. I think the cost has come down and they've they've they've gotten some partners on the solar development side, but they were getting quotes that were too high for what they needed. And so Nikko in the nitrous of a team would go out on site and build their own solar and I remember he figured out exactly how many steel beams fit on his Subaru because it started bending on one he's like, alright, that's one too many. I got to take it off and that's just the kind of scrappiness to like, figure out what you need and what to hit that we see in a lot of these founders that go on to build successful companies.

JK: David, these are such fantastic examples because I think each one speak to a really unique like founder trait right user you talked about scrappiness. There's the patience of having to go and educate people many years ahead of when the market actually catches up, right. 2017 nobody's talking about geothermal now. I mean, the number of geothermal investments have been made in the last 12 months probably pales in comparison in terms of size. To what hasn't happened in the last five years prior. You talked a little bit about customer obsession. I mean, these are all traits. I think that when a founder is pitching a VC, these are the things that a VC is looking for, from your perspective, somebody who's you know now scouted and stores hundreds of these investments over your career, when you're evaluating a founder for the program, or even just broadly when you're evaluating an investment. What are the traits that you're looking for in these founders? And how are you able to kind of draw those out to say, Hey, this is a founder that has it and somebody I want to work with versus maybe somebody who doesn't?

DM: When we're looking at projects, there's kind of a couple of key aspects that we're looking for in teams. One is we want them to be looking at a white space. That no one else is looking at. That's kind of where the most interesting stuff is and where if you put in the work to understand why nothing has happened there, you can get what we call the earned secret. Of and that happens through hundreds and hundreds of conversations, but you get that earned secret of nobody's doing it. And it's because everyone thinks it's this but it's actually this. And so, we want people who are looking at spaces that are sort of untouched, we call them the white spaces. And we try to kind of push students to look at that through so we do the project based class in winter and spring. Quarter. And then the fall we bring in, it's just a lecture series where we'll bring in experts in different verticals of climate, to kind of say, Hey, this is what my vertical looks like. This is the state of the art. Here's who's doing what and here's where nobody's doing anything but if I was a group of fired up Stanford students, I'd go try to figure out I think the prime example of that is now you hear a lot more about cement. But five years ago, nobody was really looking at cement. And Dave gave Dave Davidson gave a lecture on specific to cement and what we could do to decarbonize that and that has prompted a whole bunch of companies and projects and we've had three or four projects in the class that were kind of in the 2018 to 2020 timeframe that are now companies in the cement space that a bunch of people know and so we had Brimstone energy, sublime systems, and Furneaux materials all came out of that kind of Yeah, timespan and specifically from Dave saying, Hey, guys, no one's working on cement. Can somebody please do it? I think there's a huge opportunity here.

JK: So we talked about, you know, going after big whitespace the urn secrets idea. What are some of the other skills or traits? Because I'm very, very curious about that as an early stage investor myself.

DM: Yeah. The second thing we look for in project teams, aside from a white space, is just passion around the problem space, right? As they're going to our classes for 10 weeks, and in those 10 weeks, I would say the average number of pivots that a project team has is four, and you're constantly changing what you understand once you actually go test it out in the real world. And the only thing that's going to keep you driving when you're constantly getting feedback, is why it won't work . What's wrong with the idea is if you have such a passion for solving this, but nothing's gonna get in your way to try to figure it out. And so we look for teams that have diverse skills. Sets, as I've said, because you need all of those different tools in the toolkits and you need people who can kind of carry different parts of the team just like any company, but at the project level. And people who just want to figure out the problem and a lot of times we call that the what's wrong with this person's question. We're just every time someone tells them like, hey, it's not gonna work, or everyone every time someone says please stop wasting your time on this. I'd love to see you go do something. They're like, yeah, just know there's something here and I'm gonna keep working on it. And I'd say on top of that is, you know, how involved in the community do they want to be because again, so much of this is having those relationships and knowing who's doing what and having the people that you can reach out to and lean on when you don't know the answers. And so those are really the three things: are they working on a white space that's relatively then addressed? Are they fired up about the problem and have kind of the diverse team to go chase it down? And are they a part of this community so that they can both get and give to all the people that want to work on these problems?

JK: Yeah, all three are wonderful traits. As somebody who has worked with first time founders, as well as experienced founders. Are there specific things that experienced founders do differently, that you think more first time founders can learn from and what are they?

DM: Yeah. The CEO of Form Energy was a friend of of the class. I heard from him once that I think he said first time founders normally focus on product, second-time founders focus on distribution. And so it's, vitally important to get the product right and that means understanding the exact customer need that you are doing that you are addressing 10 times better than anyone else's. And that is really the core of what we focus on in the class and what all companies do. The only startup advantage is that you are doing one thing 10 times better than anybody else can. But he as a seasoned founder, kind of says the other thing that you need to have in mind is distribution. How are you going to get this into the hands of those customers and the more times you do this, the more you realize you need to be thinking about that from the start. Is your product being built in a way that you can distribute it? Do you have key relationships that let you get in there? And once you have built the right product for the right customer? And so I'd say that's that's one thing that we've we've recently been hearing a lot from the experience founders that we're trying to impart on, on some of the newer founders is think about distribution and how you're going to get this into the hands of customers from the start, because then you'll build your product in a way that lets you get it into the hands of as many people as you can to go provide value to them.

JK: Where I love to chat with a lot of our guests. David, I gave you a heads up before we got on the mic. It was this hyper hopeful segment that our audience loves so I'm going to keep doing it. We pick a trending topic, we want to get our guests opinion on whether it's promising or all hype, and we can treat it like a rapid fire round, so we don't go too deep on any one of them unless you want to. So I'll throw out a statement. Alaska is hyper hopeful, and then we'll dive in. Sounds good. That sounds perfect. So direct air capture is often touted as a game changing technology. You mentioned a couple of the director companies earlier in our conversation. But a lot of critics today are saying it's far too energy intensive and expensive to actually scale. What's your take on direct air capture? Is it hype or hopeful?

DM: Yeah, I mean, I think it's going to be an all hands on deck type of situation and we're going to need that type of tech. In parallel with all of the other things that are being developed. What gives me hope in that specific one is kind of the companies that are already talked about that have come out of our that have come out of our class like Holocene they're developing a novel technology that has so much potential to work on such a more efficient scale to capture co2, and we've also got Fraga Croc, who's who's an alumni of our of our Class G leads. He's the head of science for first stripes frontier fund and they're just looking at so many different things that have the potential to remove co2 from the atmosphere in different ways. And you know, he's one of the smartest people I know and if she's saying there's all of these potential technologies out there that are not just high potential but ready to deploy, then I gotta trust her on that.

JK: Yeah, yeah. So on the all hands on deck conversation, I know a lot of folks say this about fusion energy as well. But I'm gonna change the question a little bit. I'll say fusion energy's ability to have a near term impact and we'll say within the next decade, is that hype or hopeful?

DM: Well, I'll say that. I'm hoping that it's helpful because we could certainly use a breakthrough technology like that and kind of a baseload source of dense power. I don't actually know the space that Well, personally, we haven't had anything go through the class in the fusion space, which is probably an interesting data point in itself, but I do know a bunch of people that are working on it, and we're close with a lot of the folks over at lower carbon capital. They've got a whole fund dedicated to it. And a lot of the tech innovation that's coming out of that is very promising. And so I'm hopeful that it turns into something and again, you need to be working on these things in parallel. We need to be working on the things we know now and the things that are near term innovations. And keep putting things, keep putting resources towards fusion energy and the big swings that could do it. But I know a lot of people on the inside that know the tech really well that, you know, have said a decade seems reasonable. So that gives me hope.

JK: Wow. Okay. And maybe the most interesting data point here for me, David, is that, despite the fact that there's a lot of movement in the capital markets for fusion, there hasn't been as much movement, at least in your program for folks that want to focus on those projects or those kinds of companies. So maybe we need another summit like lecture to get more of these folks galvanized the way that they did around some of the cement and concrete companies you talked about. I'll do our last hyper hope. AI is sort of the buzzword of today. And it's being touted as a tool for climate modeling for predicting natural disasters. You know, I think it's also fair to say folks often overestimate what AI is able to do in the face of some pretty complex industries. What is your feeling on the integration of AI into climate challenges hype? Or hopeful?

DM: Yeah, well, I'm realizing now I'm a bad person to ask all these questions, too, because I'm still optimistic about everything mostly because if you ever need a jolt of optimism in the climate fight, please come swing by our Stanford class because these students are so smart and so fired up and just ready to attack these problems head head on that you can't help but walk out of there thinking like, oh, yeah, we've got this. It may take us a while but we've got the right people working on it. So I've got huge optimism across the board. On the AI side, yeah, we've seen some awesome things even just in our class. I mean, obviously, there's, there's a lot of companies that are already out there applying a lot of these tools. I think generally I'd say AI is becoming so ubiquitous, that it's just a part of every company in climate and beyond the toolkit. That they're gonna need to use. Some of the ones that are specific, we have a company that came out of our class called high tide, which is doing sea level rise modeling for cities and municipalities on and states on, on how kind of all of their real assets are going to be affected over the next several years and decades. And that's been a powerful tool for communities to understand what is the risk we're facing and what options do we have to go do something about it and we've had a bunch of other companies, one of the one of the best ones, funds that deals specifically in the spaces called Blue Bear capital. They work specifically at the intersection of climate and energy and AI and they know this space really well and we've worked with them on some stuff. And so if anyone wants to go dig into the companies that are making a difference there go look at Blue bears portfolio. One thing that I knew from life before different climate ventures is that a blueberry company is called raptor maps, and they kind of take imaging of solar farms to understand exactly where all the faults are, and how the panels are performing and optimizing. So it's not just on the natural disaster and understanding kind of the environmental world. It's also on how we are operating on the things that are transitioning us towards a climate positive world and they've just done a killer job with that. And it's a great example of how you can use all of these tools to do everything from understanding and data collecting to actual operations.

JK: Yeah, I can tell you as an investor looking at the earliest stages, the speed at which AI is being integrated in these companies can often feel a little overwhelming. I'll be honest, right? So climate in and of itself is such a vast category energy transition materials transition decarbonisation and then now the integration of AI into these businesses. One, it can be hard to tell who's actually using AI and who's just using, you know, some sort of data predictive modeling. And the second is that just there's so many industries that still need that level of technological integration. And so I am right there with you on the hopeful side, I want more of these companies to exist. I will say in terms of like, what is investable? I'm still sifting through it. So I'm still trying to figure out where the Investability is at the intersection of AI and climate. I know we're coming up on time, David. So I'll close with the question that we closed with a lot of our guests on and you already started touching on some of it, but since you're our injection of optimism on a Friday morning, talk to us about what gives you hope and optimism in this fight against climate change in a world that has a lot of doom and gloom. What keeps you hopeful?

DM: Yeah, and I think my answer to this parallels why I got into the climate space and how it's evolved over time. So when I first got into climate, I'd say it was very fear based. I remember when I was a sophomore in college, I was going down the finance route. And it was I had that moment that a lot of people in this space have where they're like, oh my gosh, we're screwed. I need to work on this. Because otherwise, if I'm not working on this, I'm gonna stay up at night just thinking about it. And then kind of midway through my experience in it, or maybe not midway, but a little bit after that. I started realizing Wait, if this is where the world's biggest problems are, it's also where the world's biggest opportunities are, and we can go build some really cool companies. And where I've kind of landed on now, which was for tying back to the beginning of this, which was I just saw Dave Danielson getting all of the people I liked hanging out with around campus in one room talking about this stuff, is it's the it's the industry that naturally brings in the best talent. People just want to work on this. And so what gives me optimism is you've got all of the world's best minds, most fired up people, the hardest workers coming into this space and saying, forget, like, I've seen the models. Forget, like the doom and gloom. I'm gonna go build something. I'm gonna go do something about this. And that's what fires me up about this space. That's why we run the class. That's why we want to build this community around it because when you're around that level of energy and enthusiasm, and drive, it's hard not to be optimistic every day about where we can get to.

JK: I love that, David, I'm fired up. I might be too old to go back to school. But whatever we can do to get involved with Sanford Climate Ventures. You're a great pitch, man, man. You've got me hyped up. You've got me hopeful. So we'd love to, I guess let's let's tell our audience one last time, where they can find some of the content that you've referenced over this conversation and where they can learn more about Stanford Climate Ventures.

DM: Yeah, so if you go to Stanford climate That's our website. I will say it's still a work in progress, but it's got a lot of information on what the class is about. The alumni companies that have come out a bunch of them are hiring. So if you're looking to get into this space, like go check out those companies. And then we also have the playbooks tab, which is where we're accumulating all of our favorite resources in the different parts of the toolkit.

JK: That's fantastic. David will call thank you so much for joining me on Climb today. This was really fun.

DM: Thanks, Jay. It's been awesome.

Thank you so much for reading our latest update from VSC Ventures Fund I. We're in the early days of our long and healthy partnership with all of you, so please reach out to us with additional questions on anything above. Thank you again for your support for our vision and our fund!

Vijay Chattha & Jay Kapoor

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