Interview With Climate Investor Valerie Shen Of G2 Venture Partners

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Benjamin Schulz: You have been in cleantech and especially investing in cleantech for some time now, what do you think changed between when you started and now? 

Valerie Shen: I first started working in this space in 2016. I think the biggest difference between then and now is how popular climate tech investing is. First, the term climate-tech did not exist back in 2016. People thought of it as cleantech, specifically focused on clean energy. Now we think about this much more broadly — energy but also transportation, logistics, manufacturing, food and agriculture, retail — a whole spectrum of sectors, touching every aspect of the physical economy. That all falls under the umbrella of climate-tech, and there are now so many people who are interested and working in this space. It is a combination of investors understanding there are great deals in this space, individuals and institutions who want to put their money to good use, and employees focused on working at companies having positive social and environmental impact. As a result there is a robust ecosystem, with great companies being started and an abundance of opportunities to invest.

Benjamin Schulz: Out of interest, would you make a distinction between cleantech and climate tech, or do you think it has become one big topic? 

Valerie Shen: I think climate-tech encompasses much more than cleantech. Cleantech in the early days really just referred to clean energy. And now climate-tech refers to all the sectors listed earlier, and can be thought of as the umbrella term.

Benjamin Schulz: What is the back story of how you joined the investment firm and what led you there, and what are the companies in the portfolio that you are most involved with?

Valerie Shen: My interest in sustainability and climate started in high school. I attended the Aspen Ideas Festival and was really inspired by all the conversations on this topic.  Also through high school speech and debate, the topics that were most exciting to me were always the ones around climate.

So, I studied environmental science when I went to undergrad and then thought about how I wanted to make a difference in this space. I felt pretty strongly that an inter-disciplinary approach is important, combining science and business and politics to solve the climate struggle. And for various reasons, I decided business was the angle I wanted to take. But that is really broad and general, and I did not know exactly what I wanted to do, so I started at McKinsey as a management consultant.

I knew I was going to Stanford for business school after a couple of years of work and had gotten a lot of advice that I should do at least two jobs before business school. When I was looking for that second job, I reconnected with one of my partners at G2, Dan Oros, who I had connected with back in college via a cold email. It turns out this team was in the process of spinning out of Kleiner Perkins and starting G2, and there was a perfect opportunity for me to join. Which honestly is a long way of saying it was a little bit random. I was considering a number of different options in climate-tech or policy, and was not necessarily fixated on investing. But this opportunity came around, and it has been pretty perfect.

In terms of our portfolio, I get most involved when companies want help thinking through their ESG programs or impact measurement. We have collected a lot of resources on these topics over the years, and are eager to help our portfolio become best-in-class.

Benjamin Schulz: On the bigger trends, we’ve seen a lot happening in electric vehicles and in batteries and in alternative proteins and in renewable energies and other big topics. How do you see those big established trends going forward?

Valerie Shen: Electrification is a really interesting one. Electric vehicles are increasingly popular because they make financial sense – cheaper than internal combustion engine vehicles from a total-cost-of-ownership perspective, and depending on the situation often cheaper or at-least cost-comparative even on the up-front purchase. My thesis about climate and sustainability is that altruism is only going to make a small difference, and big changes can only come when we make it profitable for people to protect the environment, with technology that allows us to do well while doing good.

With electric vehicles, we are at that point. Ton of people with varying degrees of interest in the environment want to adopt electric vehicles. And for many, this becomes the “gateway drug” towards electrifying their whole lives, from their homes to adventure equipment.

But then, there is the question of what system-wide changes are needed to allow this to happen. You mentioned batteries, which are key. How do we get the raw materials to produce batteries at scale, and how do we recycle batteries at the end of their life so they do not end up causing more pollution than they save. Charging infrastructure is also key. Today, this parking lot we are in, we probably have a hundred spots, with only four electric vehicle charging stations. If we want to move to a world where the majority of people are driving electric vehicles, that just does not work. So, we see a huge opportunity in transitioning from the infrastructure we have today and the infrastructure we need for the future.

You mentioned alternative proteins, which we are also really interested in, as that is another example where the current infrastructure just does not work. Existing agricultural practices are already unsustainable, and will become even more so as more of the world increases their standard of living. Additionally, much of our food and agriculture work focuses on improvements in the food supply chain, to reduce waste and increase efficiency.

Benjamin Schulz: And of the lesser talked about — or more nascent — new topics in cleantech and climate, what are you most excited about? 

Valerie Shen: We are thinking a lot about carbon accounting and carbon offsets. Definitely not a less talked about topic, but still very new.

Many companies are trying to measure their carbon emissions and change their business practices to reduce those emissions or offset them to be carbon neutral or net zero. So far this is driven mostly by consumer and employee sentiment, but there is a real possibility for increased regulatory action as well, which will cause the space to grow even faster.

We think there is a ton of opportunity right now because there is still no clear standard or methodology for measurement or reporting. A number of companies are trying to help with carbon accounting in interesting and innovative ways, but there is not yet a solution that is cheap, easy, truly automated, and gets to the level of detail that satisfies everyone’s needs.

Then there is the question of what you do with the information once you have completed the accounting, since a big part of why we want to measure emissions is to reduce them. One of the primary strategies is purchasing carbon offsets. That creates a whole set of opportunities in developing projects that generate offsets, building marketplaces to connect buyers and sellers, and establishing trusted ratings agencies and standards so buyers can efficiently identify quality offsets.

Benjamin Schulz: And mentioning policy, if you could enact one policy, if you have one wish, what would it be?

Valerie Shen: If I had a magic wand I would implement a price on carbon, likely through a revenue-neutral carbon tax. Although I do not know that this is what I would be pushing for if I was a US politician right now, and had to take into account feasibility. I am very much a free-market conservative and believe in letting the market do its work, but I believe in pricing in externalities. If we put a price on carbon, starting not terribly high today (on the order of $50 a ton), with a clear ramp-up schedule over time, then technologies and processes that are only profitable today because they are not paying for the environmental damage they are causing will naturally fade away and be replaced by cleaner alternatives. I think it is best to not have the government decide the details, and rather to let the free market work. I also think it is key for a carbon tax to be revenue-neutral (i.e. distribute all the proceeds directly back to individuals, or reduce other taxes by a comparable amount), and not try to interlink this with other social goals.

Benjamin Schulz: Looking into the future, what do you think the dangers are in climate and maybe climate related things down the road in three to five years that you think are not talked about enough?

Valerie Shen: One big problem is the potential of being locked into fossil fuel infrastructure. Many things we are building or connecting to the grid today, whether it is a new coal-fired powerplant or a new internal combustion engine vehicle, will have a lifespan of another 20+, even 50+ years. And as much as we can say it is a good financial decision to get an electric vehicle as your new vehicle compared to a new gas vehicle, it is going to be hard to take a perfectly functional gas vehicle off the road and replace it with an electric vehicle. So, I worry that if we do not move fast enough in the next year or two, we will deploy more of the old technology and be stuck.

Another thing I think about is the future of human labor and automation. Many of the companies we invest in are working towards automation and improvements in the supply chain or automation that create more efficiency using technology. That means many of the jobs that exist today will not exist five to ten years from now. That transition is often good for climate and good for the environment because we are working in a less resource-intensive way. And there are great new job opportunities that come with the boom in climate-tech. But making sure those transitions are handled properly and people have enough support will be a big societal issue if not handled properly.

Benjamin Schulz: Would you describe yourself more as an optimist or a pessimist with regards to how humanity and specifically the US is going about solving these problems?

Valerie Shen: I am definitely an optimist. I think there are two aspects of that. One is, fundamentally I believe in most of our societal systems. There are a number of people who believe we need drastic shifts to the general social order in order to solve the climate crisis, e.g. the Green New Deal type of philosophy. I really disagree with that. I believe that capitalism works. I just think environmental externalities need to be priced better. Therefore, my vision of the future where we have solved our climate crisis is really not that fundamentally different than the world today, so I think there is a good chance we will succeed.

The other reason I am optimistic is that there are already so many things people can and are doing today that are great for the environment and great for the bottom line. As I mentioned earlier, I do not believe people will make big changes just for the sake of the world, unless they individually benefit or it is required by law. But the great news is many of our portfolio companies, and other climate-tech companies, are building technology that makes doing good for the environment also good for the individual.

Benjamin Schulz: Are there specific people and firms or organizations in cleantech and otherwise which are a particular motivation for you – maybe since a long time or recently?

Valerie Shen: There are so many people who have influenced me — I’ll mention three here. One is Dan Schrag, a professor at Harvard University. He was my thesis advisor in undergrad. I took a class with him at the very beginning of my freshman year and he is the reason that I started studying and working on climate. He started his career doing research on the fundamentals of climate and geology, and with that knowledge has advised governments on numerous topics and led a number of initiatives at Harvard around climate and climate policy. And he has trained so many people throughout the years who have become great climate scientists, entrepreneurs, and policy leaders in this space. I continue to go to him for advice on a regular basis.

The second person I will mention is John Doerr. He was the mastermind behind the Kleiner Perkins Green Growth Fund back in 2008, which is where my team at G2 Venture Partners came from. John recently published a book, Speed & Scale, that outlines a clear roadmap for combating climate change. His dedication and the resources he has put into this effort over the years is really admirable. He is great at identifying awesome entrepreneurs and investors, and really investing in them and empowering them. Many of the lessons my team learned from John Doerr continue to influence how we operate on a daily basis.

The last person is Al Gore. I first watched An Inconvenient Truth when I was in high school. I wrote about it in my college and business school admissions essays, and it has been a big influence over time. When I first joined the Green Growth Fund at Kleiner Perkins, I was stoked to learn that Al was an advisor to the team. His dedication to fighting climate change, whether it’s through his speeches or films or investing or advocacy work, has inspired many other people to work in this space, which really magnifies his impact.

Benjamin Schulz: You mentioned a movie, what did you think about the movie Who Killed The Electric Car?

Valerie Shen: I watched that movie in one of my undergrad environmental policy classes but sadly do not remember too many details.

Benjamin Schulz: Lastly, if you were not working in venture investing, what do you think you would probably pursue? 

Valerie Shen: One possibility is environmental policy. I believe that despite all the great work we are doing in the private sector, one of the big ways we can accelerate environmental progress is via policy and regulation. Most of my political views are very conservative, so there is a very narrow set of people I would work for. One example is Senator Mitt Romney, who I think is an incredible leader and doing interesting work on climate change. I interned with him a while back and would be interested in working with someone like him who is really pushing a conservative approach to fighting climate change.

I also think there is a really interesting role for convenors in climate and environmental work. As I mentioned earlier, I like working at the intersection of science and business and politics, and am a very social person so love the idea of bringing together all the right people for discussions and debates and collaborations. There are a number of institutions doing exciting work in this space – one example is Stanford University, which is starting a new school focused on climate and sustainability.