Responsible Venture Capital – E72

Great to chat with Zécca J. Lehn, General Partner of Responsibly Ventures, a PreSeed VC Impact Fund, backing remarkable teams in both sustainability and social good! We discussed the process to become an accredited investor, how VC can be aligned with sustainability, the general process for evaluating a company, the difference between venture backable vs venture geared and more! 

https://carbotnic.com/ResponsiblyV

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Thanks so much! 

James

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The unedited podcast transcript is below

James McWalter: Hello today. We’re speaking with Zecca Lehn general partner at Responsibly Ventures, welcome to podcast Zecca, brilliant I supposed to start, will you tell us a little bit about Responsibly Ventures.

Zecca Lehn: Thank you So nice to be here. Thank you.

Zecca Lehn: Ah, yes, so the fund responsibly. It’s a preseed vc impact fund align with both direct and indirect impact. I like to have every deal have an aspect of sustainability or social good aligned with the fund.

James McWalter: And what drove that initial decision to start the fund. Okay.

Zecca Lehn: Well, ah you know I’ve been I’ve been ambitious to be a professional investor for some 20 plus years and have invested in sustainability for a long time. And for me this was ah, kind of a natural step after having started as an angel investor or an impact focus angel investor a few years back and so starting a fund just felt like the natural progression I just love every minute of it.

James McWalter: Like absolutely and this was 1 of the kind of amazing like opportunities when you start a fund that is the types of kind of boat on the limited partner side but also the kind of founders side of things. So How you found you know, like building those relationships finding. Like really smart founders to speak to and what’s your kind of general process for that.

Zecca Lehn: Well I’m learning as I go and this is my first time to the rodeo as they put it and being a general partner a solo gp as an emerging fund manager to a first time fund is it’s a learning process. What I did first is I got engaged with the founder institute. They have ah an incredible program called the vc lab and it puts together a group of people around the world and each fund manager or group of fund managers helps build their thesis. 

Zecca Lehn: Ah, sort of pull the market get some feedback from potential customers or potential lps. They put you through this kind of brute force. Incredible! Incredibly difficult program that they kick people out if you just don’t hit certain benchmarks on a weekly basis and it’s I think it started maybe like five percent of us.

Zecca Lehn: Out of a thousand applicants got accepted of those. Let’s say 1 hundred and twenty funds or so I think there were remaining 10 funds after 2 months or 2 or 3 months and it was grueling. It was amazing though it was ah it was a great process. Probably 1 of the most difficult vc Boot camp style programs out there especially aligned with sustainability. Um, that’s kind of their their core their core goal right now.

James McWalter: It’s kind of this fascinating transition that I guess the venture world has gone through over the last kind of Decade or so where you know became very professionalized I guess in the ninety s you had you know the a 16 z’s and benchmark and into coas of the world kind of emerging as like those first kind of major funds. And then we started to see the kind of emergence of smaller mid tier funds especially ones that’re targeting either geographic regions or specific industries and that we’re seeing like this kind of a massive increase I guess in even more kind of micro-targeted funds. Um often driven by you know, solar gps or.

James McWalter: Ah, people who have you know particular perspective I’m thinking of the likes of Jason jacobs and my climate journey. You know, kind of I don’t think he ever had a right exactly he didn’t really have a kind of view when he started the podcast eventually be you know a fund manager but that’s kind of where he ended up and so yeah, it is this kind of fascinating.

Zecca Lehn: Rolling fund.

James McWalter: Period And so yeah I guess you know like when you when you were kind of looking at the space were you kind of like oh this is now changing in a way in a direction that I want to get involved in or I suppose what was that kind of thought process. Sure sure.

Zecca Lehn: Well okay I think it’s important to start like how did I get exposure to vc and sort of a lot of people use the term. How did you break into Vc I I kind of belly-flopped into Vc I I was actually working on in the quantitative finance side as a former data scientist I was working.

James McWalter: Right.

Zecca Lehn: For this proprietary firm that was investing quantitative strategies and I started engaging um with their division on a very very ad hoc basis to to dive into some more technical due diligence around the. Software the data platform etc and realize that venture Capital is quite fascinating and I tried to volunteer myself more for that and understand a little bit more about it and it just so happened that 1 of my colleagues at time gave me a.

James McWalter: And.

Zecca Lehn: Give me a book from Jason calacanis called angel um, and they said just read this book. You’ll love this book and I said oh I don’t know angel investing what that is and they just said you know, check it out readdit I ended up reading the audio book version 3 times and for the most part that that book gave me a great foundation in terms of understanding.

James McWalter: All right.

Zecca Lehn: What venture capital demands and what the landscape looks like and some of the signals that go into um what a founder may want to consider when they go out to raise early stage venture capital and um, it really just opened my eyes and and from that point I actually branched out and became accredited. It took a long time for. Myself and my family to get to that state and um and and just for those listeners that I’m not sure. But um, you know accreditation in the us is usually ah about 2 hundred thousand or 3 hundred thousand depending on your household for the last 2 years that’s the threshold Thecc sets. But then they also have an net asset. Basis of I think it’s a million plus they also have some new requirements which allow for finrabased brokers. Do someone to take the finra license for example and even be an unsponsored participant under finra I can’t remember the series number I’ll we’ll have to get that. But um. Yeah, you can become accredited now whereas for some 60 years the only way to become accredited was to have your corporation ah above five million net worth or your individual household etc. But it’s become more accessible long story long story short that happened just recently a couple months back.

James McWalter: Yeah. Very very exciting. Yeah, and I guess that kind of leveling or that ability for more people to kind of have access to what is you know and not an inconsiderable path to ah like wealth right that a lot of people have kind of taken advantage of because you know they had a high- paying job or them from family Welt and so On. I guess some of those doors have now opened a bit more for kind of a wider group and a more diverse group of people.

Zecca Lehn: Yes, exactly? yeah, it’s a good thing overall for the ecosystem. Ah, 1 thing that I have to say that’s positive about the move from the scc this this finra-based approach is that there’s. Quite a high ethical standard to you know pass these tests and there’s a lot of rigor that goes into financial modeling and all the rest. So the level of sophistication for those who choose to take a path say in the direction of finra are presumably going to not be dummies when they first get started. Whereas if you were to just say lower the bar all at once and say anyone can invest in any financial project. There could be unintended consequences I suppose if I had to just kind of look at it through the scc’s you know, lens for a moment. So I think the step that they’ve taken the. Pretty low barrier 500 dollars. Let’s say in a couple months of studying and you can if you’re really ambitious and you want to become a crowded investor participate in syndicates or funds etc. Um, it’s actually quite a good change in my opinion.

James McWalter: Yeah, this is hard balance because if you completely open to floodgates. You know you you have a ton of access to like really cool companies but you also have a ton of you know, pyramid schemes and all this kind of thing that are hard for I Guess a person who doesn’t have the time for due diligence to really process and I think that’s a lot of.

Zecca Lehn: Gap.

James McWalter: Piece and I’d love to hear you kind of thoughts on how you think about? you know the time or what’s I Guess your general process for evaluating a company.

Zecca Lehn: Oh okay, good question I was also going to give a shout- out to the reg cf side of things. The jobs act that changed made accredit they made access to early-stage deals available on these regulated crowdfunding platforms.

James McWalter: No.

Zecca Lehn: Which has also been a great advancement for the industry to allow retail investors to participate I’m not sure you know how much listeners want to know or know. But that’s also an avenue um, in terms of deals and in terms of way I’ve I’ve looked at my own angel investing over the last 2 3 years actually um, have invested about forty different companies I invested all through syndicates because I was a small angel investor to get started so I used that as an avenue because you can usually check kind of check less than say 5000 what they do is they pool these things together with other investors and you can invest with say 1 hundred and fifty. Plus people and maybe they raise 2 hundred thousand they have ah a fee on the the frontend. The the thing about these deals though. Just like you would get with regcf through a platform is you don’t necessarily have a deep view on diligence that the the manager the the platform gets when they select these deals. So you have to get kind of creative in terms of other deals. You’ve seen what’s in the marketplace you have to look at sort of reading more about the news of the company. You may be able to ask the questions to some of the the syndicate leads etc. But it’s not necessarily as involved as a fund manager would have in terms of looking at. Different deals. So what I chose to do instead to kind of level myself up to become an eventual venture capitalist was to work as a venture scout so working on an a non-exclusive basis with funds around the the us helped me to kind of go out into the marketplace and just.

James McWalter: And.

Zecca Lehn: Be able to talk with any founder that’s raising at any stage and say you know hey I want to learn about your company tell me about you. You know I do the you basically do the vetting and then as a scout the way that that’s going down a rabbit hole here. But. Ah, scout would basically take a percentage of carried interests under contract if there is an eventual exit so long story short that process of discovery from both the diligent side this more technical side but then also just from the the top level screen side. The market side. It’s it. Ever evolving process for myself. What I did is I I started out putting together about 30 different questions that were all very ah, kind of dry and very kind of force functioninges. We’ll say these types of questions there was 1 I would ask myself for almost a year looking at 1000 deals or something I would ask is this a.

James McWalter: Rise.

Zecca Lehn: Vitamin or is this a pain Killer or is this a pain killer with side effects and questions like this. They force your brain to kind of get realistic about what it is. You’re actually seeing like okay how big is this market. Um and write up a bit little bit about that. What’s what’s the defensibility of this actual strategy.

James McWalter: And.

Zecca Lehn: What are some attributes of the other startups out there and those types of types of questions help put yourself into a mindset where you become a little bit more skeptical about each situation to some degree and that’s a good thing in my opinion.

James McWalter: Absolutely and I I think going into depth is actually like super beneficial. You know to people you know we’re hoping to reach through the podcast and I say that because you know so many. There’s not that many like vcs in the world or Angel investors even in the world right? Like we’re talking you know hundreds of thousands of people. You know in a population of billions. And I feel like because it’s such a small group. You know there are like any small group ways of talking things that people in the group like just guess wears people outside the group. You know what was it.

Zecca Lehn: Yeah, it’s opaque.

James McWalter: It’s opaque and they’ll say the kind of embarrassing thing. It’s like going to you know the showing up at the party and everyone’s in you know suit and tie and you show up in ah or short or shorts or whatever maybe um, and so these kind of tradeoffs I Guess are this kind of lack of access to just.

Zecca Lehn: Patagonia vest.

Zecca Lehn: Yeah, it you can yeah it it can be. It can also be ah, a can. It can be a really good way into the space I wouldn’t disagree with you there. But I think.

James McWalter: Basic knowledge of how things work I think holds out way more people than we want because you know there’s a ton of smart people out there who would be amazing Vc scouts and I think that’s a great like route into this space and people are interested.

Zecca Lehn: Um, also just being working in a startup and understanding sort of like the operational side of a startup is also a tremendous way. There are so many ways that you can get exposure.. There’s not I think there’s it’s very unique to every person in my opinion I think it’s important to be open. And be accepting Obviously I get I Love going on podcasts and telling a little bit sharing knowledge I host host rooms on clubhouse all the time and try to be as candid about things as possible. But I think Also it’s important to recognize that everyone’s going to get a different experience on their way to where they want to go I don’t know that’s probably. Just my opinion I guess I think it’s also important what you said though too to be opaque less opaque if possible and and to be candid about some of the realities of of being a venture capital.

James McWalter: And absolutely and honestly like more you know people who’ve worked at startup who’ve been operators would in funds I think is generally in net benefit. You know there’s often I guess like this detachment between you know the founder trying to talk to. Ah, you know a vc especially like ah, an associate or junior associate who maybe you know is like 2 years out of their nba and so on right exactly and so I think I think again just having more ways of shared language shared experience I think is in general like this kind of net benefit.

Zecca Lehn: Someone that’s trying to impress the founder.

Zecca Lehn: Yeah, and back to your point I would say being a scout what that does do is it puts you into the mindset of what you don’t know very quickly and I think maybe junior vcs may sometimes get themselves into trouble where they. Want to sound smart. They want to impress people around them and they just don’t necessarily go in with that mindset of not knowing I have to say 1 thing I don’t think that that’s something you’ll get necessarily by being someone who’s scaled a company per se I think. Being inquisitive and being open-minded and being there to help on whatever regards it happens is a really useful mechanism or you know sort of strategy I think it’s a really great way to go and when I first got started as a scout at a particular I got a lot of pushback because I would go into meetings with. Founders who are you know? third-time founders telling me about what they’re working on and immediately asking about my background you know feeling that they’re a little bit defensive and um, that’s okay, actually it’s good because it put me into that state where I was having to be way more open to what I didn’t know and i. Consciously speaking I never put myself out into that position where I tried to pretend like I had advice to give and 1 thing about advice in general is in my experience is that it’s it’s easy to think that we’re. You know, adding value when we know something and that’s an immediate win to kind of suggestions but it’s it’s a lot harder and probably better to resist that urge to kind of like kind of put everything into a forcing function and give that quick advice etc and but rather to just ah set a point to. Statistics or point to broad ideas pointing people sort of in 1 direction versus the other without saying this is the direction you should take that aspect is something I had to learn myself and it’s been. Ah, it’s been a great tool and I still try to continue in that fashion just to. Just to be as supportive as I can and not go in with the assumption that what I’m going to say is should be steering someone towards something.

James McWalter: Right? I mean the hardest lessons are always aren’t true practice. Anyways, right? and so you know I think when I’ve managed teams and you know like ah that tookled me a while to be. You know, be somewhat of a a better manager to when you start off with but 1 of the things that I guess I’ve been learned. Managing different teams over the years is that sometimes I’d have like a direct you know Junior come and say okay I want to do this thing. Um, we we agree on the outcome that we’re looking for and they’re like I want to do it this way and as long as it’s you know it’s a week long experiment to kind of get there I would always be like yeah, go for it even if in the kind of back of my head I’m like hey i.

Zecca Lehn: That’s cool.

James McWalter: Pretty doubtful that this will work. But you know why not like like try it out and what’s amazing I think by giving that freedom if I just said like this is not going to work. They never learnt the underlying reasons why it didn’t work. They just had James given out and and and given an opinion and like it’s it’s disabling in some ways whereas if you give them the opportunity to grow.

Zecca Lehn: I Say either.

James McWalter: Like then the next time they’ll actually start to form the kind of thought patterns for why that first idea maybe didn’t work and like why the next idea has to be a little bit different.

Zecca Lehn: Right? That’s really wonderful. Yeah  I think that um I haven’t found that level of confidence in the founders because  I just try really again I just try to show as much support as I can and create ah but the only value I. Say that it can be generated just by being more open-minded toward the founders and is just creating a safe space where they don’t feel like they’re being judged and where they can just talk openly and freely and they know that your reputation is aligned with their outcome in a way that you know you’re not there to Judge. You’re not there to. Tell them what to do? You’re not there to give them. You know, quick advice etc. I’ve found generally speaking that the founders loved that. They’d love them when they can just kind of have a conversation disarm conversation. Of course sometimes you get some red flags when you create an environment like that so you could somehow use that in some sense. But. For the most part I just I just try to keep it all confidential and all very like very very cleanly focused sort of thing.

James McWalter: And in terms like the specific criteria that you use to kind of evaluate like ah like an opportunity at a particular company today with it with the current fund. You know what’s the kind of framework that you use to see you know as I’m sure you mentioned you’re seeing tons of potential companies to fund. Um. Why pick 1 versus the other What’s the framework you bring to bear.

Zecca Lehn: Well I wish I could say it’s always ah a very you know, like a perfectly aligned system that I have you know, clean, outcome. Ah, but I actually have to say that I think 1 of the things that is less discussed as ah as a professional investor. Is that we’re dealing and ah with Uncertainty. We’re dealing with probability pretty much in everything we look at Um, so what I think my job isn’t to necessarily nail down kind of what exactly is a process to get to this exact outcome. Is is more so how do I debias myself? How do I how do I look at um, ways that I may be getting in the way of finding value and generating value etc and that that goes not only to this the investment selection process but to the way I allocate my time the way I engage with of lps and things like that. There’s an element of of confidence and subjectiveness that goes into decision making that I think is kind of why there are even our vcs or or and professional investors. Um, we need to deal with limited information or. Bars information or confidential information every single day you know that I get ten twenty conflicts of interest and I need to know how to you know, navigate that in an ethical manner. Um, it’s not easy you you kind of have to lead forward with just being ethical first and to be there. Ah, as sort of as open as possible but you you can’t share. Yeah frank this is the funny funny part about this experience. You cannot be fully open about things because it will it will materially damage other parties you other founders. It’s their other people’s futures are at Stake and. You know, obviously um, we need to be selective ahead of time. We don’t want to like create scenarios where we get information and use it and that wouldn’t be ah my reputation would would be destroyed quickly if I operated that way. Um, you know so I think it’s just a matter of some ways. Um. But again more specifically your investment process. I mean we can talk about impact and those other things but generally speaking. It’s very situational. It’s very very unique.

James McWalter: Yeah, it’s interesting I mean it’s actually there’s a lot of these kind of overlaps with entrepreneurship or founding in general like 1 of my favorite definitions of what an entrepreneur is is somebody who like makes the opaque transparent because to start any business you’re like um, you know like is this going to work right.

Zecca Lehn: I Like that.

James McWalter: You know and and the bigger the potential outcome the more uncertain you are at the beginning right? and again that like goes into the world of vc-backed versus something more like a lifestyle business where you know you can kind? yeah.

Zecca Lehn: Wow. Well, we could talk about that. It’s maybe too contentious but I’ll go there if you want to I’m just yeah I think you pretty much summarized it I mean really? Well, I Love do you know? who said that quote about the opaque to the transparent is that your idea I like that.

James McWalter: Please please have to absolute comfort.

James McWalter: Know it was actually there’s a podcast I listen to because I definitely listened to a lot of what’s coming from the lifestyle entrepreneurship side of things but a podcast called the tropical and Mba and it’s a pretty interesting name and but these are guys who built you know a.

Zecca Lehn: I see Yeah, ah yeah.

James McWalter: Distributed team business. It was a physical product based in the us it’s valley podiums or something like that back in like 2000 four and then they sold it like 5 years ago or something um, but they but they basically are I think there are like a thousand podcasts and they talk a lot about you know the kind of.

Zecca Lehn: Awesome! Oh my gosh.

James McWalter: Bootstrap or mentality the kind of li lifestyle entrepreneur mentality. Um, how wealth is 1 prism to like look through success but also freedom and time and location or these other prisms and I actually do think I put a lot of people in the kind of vc backed startup space like onto them because I think they definitely inform. Um.

Zecca Lehn: Yeah.

James McWalter: You know the tradeoffs you make right? because very few startups even with the best will in the world become billion dollar companies and if you end up spending 8 years and you have very little to show for it and you know the relationships in your lives are damaged and all these things was that kind of worth the tradeoff and I guess it’s it’s. Bringing those to bear as you kind of think through what you really value? Yeah, go for it.

Zecca Lehn: I’m I’m getting into your head James watch out be careful I’m going to brainwash you I’m just joking I like your mindset. Um I have to say there were a lot of things there that I would like to try to address and I don’t know if I’m right about everything but I have slightly slightly different take on some things.

James McWalter: Enters.

Zecca Lehn: Um, ah I think 1 thing is this billion dollar aspect if you we just wanted to accentuate that for 1 moment. Yes, we we know that there’s a power law in in venture backed companies and that probably is true in all forms of. Companies in general, you’re just going to see failure rates higher higher at certain time slots, etc. Um point is is that ah the question is I think the question is why do we look at those things. It’s it’s important to recognize it’s it’s a cultural thing but it’s also a um. It’s also a little bit ah Structural. So ah, the aspect of returning the fund this idea of returning the fund and when a company does run and hits these great targets and they hit break out velocity and they they you know Peter thiel’s idea of kind of becoming the monopolistic player for some time. On their way to the public market. Obviously that’s ideal because there’s less friction etc. The the blitzscaling idea in general I think has an alignment toward venture capital especially this silicon valley version of venture capital in my opinion. Um. However, having said that um I have been exploring over the last couple few years, especially on Twitter this idea of I call it. The green unicorns. So um, it’s a little bit of um, a little bit of ah a play on like ah the binary you know dialogue.

James McWalter: And.

Zecca Lehn: Um, I do know that we have different forms of patient capital or like you said Lifestyle style businesses or even smbs and things like that I think that there’s a little bit more nuance to this to this aspect of venture capital and the unicorn story. So the 1 that I’ve been exploring and given that we’re a preseed fund. We can have this in our dialogue more often earlier the stage fund the lower the valuations now all all that really just means is that we can have similar types of returns assuming all lsql. You know, failure rates, etc. At a smaller exit but still get a tremendous multiple so we can still have like ah just it’s maybe a moot point but we can have a great portfolio return Even if the company exits let’s say it like a 200 million on average or or actually 1 fifty million on average because I think the the average us company.

James McWalter: Or.

Zecca Lehn: That is venture backed exits I think 2 hundred thousand or 200 million average I think that’s the average. So imagine just lowering that average for earlier fund. But then it’s you know, not to get too deep in the weeds. But basically it just your failure rates. Go up the closer you go.

James McWalter: And right? okay.

Zecca Lehn: To accelerate around so to speak Anyway, Long story short is that another thing about this idea of venture backable I don’t like it too much I like I think about this a lot and I use the term venture geared very intentionally because it puts so in the impact space. Um I see this a lot.

James McWalter: Yeah.

Zecca Lehn: Where certain founders have a mission that is very societally focused or mission focusedcused or environmentally economic impact focused and um, oftentimes the narrative surrounding Venture Capital is 1 where. Is my experience 1 where you know it’s like okay we don’t want to be a unicorn and we don’t want to go into grind mode where there’s nothing else, but you know month over month return and or else we just we just Fail. We want our mission to be accomplished for example and I say that’s great I Want to support that. Um, but what I do do as I focus on this venture geared aspect which to me just means that you understand a little bit about some of the tradeoffs that go into taking higher risk capital and some of the constraints of who your next competitor is going to look like and if that’s a non-impact focus company then you. You You know for me I Personally want to look for companies that have a defensible impact that drives additional revenue Potential. So I call it an impact Moat for yeah.

James McWalter: Yeah, no that that makes a to sense I mean I think on the impact piece specifically the best impact companies that I’m sure you’re seeing and and definitely I’ve seen are ones where the impact itself is contained within the business model where the every excess dollar or every.

Zecca Lehn: Um, right? Yeah, that’s it.

James McWalter: You know the growth itself like generates increased impact rather than it’s you know we’re doing this other thing and like this impact on the side or we if we don’t make money we actually have greater impact. You know the alignment has to be there and it’s quite difficult right? because a lot of things don’t align with the impact.

Zecca Lehn: Yeah, it is difficult I agree I agree and maybe that’s a event a lifestyle business and lifestyle impact business would be 1 perhaps where the company you know takes some of it. It’s like say it 1 that is. Over-indexing on all the external factors first. Okay, so just to paint a clearer picture I usually refer to impact first versus finance first or what I like to call it vc impact which is slightly modified. But. A finance first impact company is 1 where it’s aligned or geared toward venture in my mind and that just means that they understand that we’re presumably looking for a more aggressive growth pattern and that means also in my opinion. That external aspects that all positively impact positive impact focus. Let’s say you know community outreach or having um very deep layers of stakeholders that are intentional and conscious and good. But they don’t drive again back to driving value to the the the revenue you know revenue-based value. They may not be appropriately timed so those things would be you know less so inclined toward venture capital in my opinion only because. Because they’re delaying. They’re delaying growth for something that is intentional now and and good and costly let’s say something like that. Um those businesses tend to I think what you’d call maybe more lifestyle businesses perhaps and or lifestyle businesses. Also this is maybe a little tune and out nuance. But. Lifestyle businesses also tend to have more competitors and they tend to be more friction based they tend to be um, you know, lower total addressable market or even sizable markets things like that and and I think like a good example would be say like ah. You know, um, a restaurant chain. That’s a franchise you know in Southern california doesn’t really line up with venture capital the way it’s currently Structured. It doesn’t mean that it can’t it’s just that it’s not geared currently toward I guess hopefully that’s a useful example.

James McWalter: Yeah, no absolutely and and and I guess there’s these even kind of in between types of companies that have been emergent where there are these new types of financing around kind of revenue share and so on where there’s so potentially like a software ah a business that could scale.

Zecca Lehn: Yeah, exactly.

James McWalter: Um, potentially but um, you know, maybe some of the reasoning that you mentioned whereas farmers ah founders not even farmers but founders might be interested in scaling at a different speed. You know they might again might have like different criteria that they’re looking for things like revenue shared based funding are these kind of interesting new directions.

30:00.97 Zecca Lehn: Yeah, Blend blended finance. For example, as as well it really and jed emerson is 1 of the pioneers here and and I think it’s wonderful to see that those avenues for founders to have more tools to be able to scale their businesses the way they.

James McWalter: Yeah, yeah.

Zecca Lehn: Intend to that’s also I’m I’m a big supporter of this myself.

James McWalter: And you kind of mentioned. We’ve obviously been talking about impact I Guess how do you evaluate impact you know, are their Predictive Frameworks I think I saw the U n sustainable development goals as mentioned on your website.

Zecca Lehn: Yeah frame I don’t use the word Frameworks and I use the sustainable development goal Sdg is the seventeen s stgs as a proxy for ah like a goal set because they are goals for 1 I use multiple per deal. So What I do is I say okay. Is this a diverse team working in water impact and are they focused on um, some other social impact aspect. Um, you know, clean water. There’s a health overlap etc. That’s a top level screen for me like ah, kind of the the stakes are you know, have the a nexus opportunity set. Ah, sustainability focused in in its in its broadest sense. Um, That’s what I use initially and then I look I go down into looking at every individual deal and I say okay, ah you know what is the um Like. What does the team look what does the team look like are they focused on impact is there is this their objective. Usually that’s the case most of the deals we see are just like this and then I I just go in and looking you know what are what are the metrics look like um yeah I’m I’m not partial to putting. Constraints on founders and saying you know you have to have this clause at the other you need to go after this particular set of Capital etc. All I’m concerned about is whether or not this company has a scalability component and again like you said the the objective is to have. Impact that scales with the revenue. So you know take for example, um, Tesla you know the bigger Tesla gets presumably if they operate in a similar pattern. Let’s say they’re presumably going to create more positive impact I mean that may be too simplistic, but that’s that’s.

James McWalter: And not so and you know I had a couple other interviews today that that are coming out around the same time and 1 of the really nice things about other kind of founders I’m was talking to today are that they share that kind of tesla piece if they get big if more people use you know their seaweed-based plastic.

Zecca Lehn: More or less the idea.

Zecca Lehn: Yeah.

James McWalter: Um, we have less actual plastic out there in the world and it’s just like completely tied to the actual um you know amount of impact like you know the more skews that are that are sold like the better kind of thing.

Zecca Lehn: Yeah, it. Yeah, it’s it’s important to to see that but it’s also important I’ll say and where my where my expertise does come in is I’ve worked in the negative externality space for a long time ah in and in impact with within large renewable energy projects. And intermodal logistics and things like this I I think personally that it’s ah, there’s always going to be ah, there’s always going to be an externality and there’s always going to be a risk reward aspect to impact so I like to ask founders before I get started because I generally don’t know as much as they do. I so I ask openly can you list say 5 or 10 potential positive impacts and potential negative impacts and then you know then I go and I kind of reverse that do I look at well how could this negatively impact the revenue stream or how could this you know potentially be a ah. An impact factor. Not worth taking a risk on For example I could throw out some obvious ones like ah, a business model that has a very obvious positive impact. But then a very obvious negative impact or non-obvious impact negative impact such as you know something like. Crypto you know the mining aspect of layer 1 solutions being what’s currently used or what’s being planned to use I mean I’m just using that hypothetical I don’t mean to pick on Krypton per se but there there are a lot of nuances to it for sure. It ah takes time.

James McWalter: Yeah, absolutely, and just because you mentioned crypto. Um, 1 thing I don’t think I’ve done this on the pack before but I’d love to kind of throw out a couple of different you know sectors or that are out there and you know what you see as the opportunities for either existing startups or future startups in the space there we go.

Zecca Lehn: Sure I love it that.

Zecca Lehn: Oh you get to test me 5 years from now when we do this interview. Yeah, you’re wrong.

James McWalter: Yeah, yeah, um, so I guess first um, you know Regenerative ag is obviously this area where we could have potential you know change farming so that we have more carbon sequestration. Um, there’s some carbon credit marketplaces the norrris and in the goes of the world kind of moving into that space. There’s a lot of measurement technology being developed. What are your views on can region ag and the opportunities there?

Zecca Lehn: I’d like to understand more about it. We have a roundtable this Friday on sustainable agriculture and I plan to bring in so and I I would love for you to be there james um on clubhouse we do we weekly shows 3 thirty Pm Pacific time fridays we have these roundtables with vcs founders and other thought leaders like yourself.

James McWalter: Ah, great.

Zecca Lehn: Um, that get together and we just kind of go through this process and regenerative ag I think is 1 of these emerging areas which is really exciting I have I’m aware of a lot of companies work in this space I think there’s a lot of room for potential opportunities I don’t know all of them yet. So I’m still trying to kind of explore and if sustainability sustainable egg and or regenerative egg combined somehow and there’s going to be some nexus opportunities presumably within biodiversity banking or water mitigate mitigation or you know, clean streams or yeah. Other types of auxiliary ecosystem credits that I imagine could tie in well to these these subsidy models or these credit-based models that are voluntary, etc, Etc. I think we have a lot of opportunity there I just don’t I don’t know whether or not I see them as being quite yet ready to scale in certain markets I think maybe. Um, I mean I don’t like to give a times stamp because 1 never knows. But I think that there’s a lot of opportunities for the carbon, the biodiversity, the water quality aspects that we’re just going to continue to see a lot more fire mitigation all these aspects and I think that doesn’t necessarily tie right into sustain ah regenerative ag as you mentioned it. But I think you’re going to see opportunities that have overlaps machine that in my opinion.

James McWalter: Yeah I mean I think like because ah, anything that has kind of a land-based solution for climate I Think what we’re starting to see is more of an ecosystems-based approach right? which do take into account these things I Mean. Agriculture is very linked to things like migrant Labor. You already mentioned water. There are all these other elements and you know when I’ve talked to like large yeah large the biggest Ag companies in the world. Mike Brian Mccargill and and and then companies like this you know they’re They’re not always. Ah historically the best for the planet.

Zecca Lehn: Things.

James McWalter: Um, but it’s interesting talking to some of those companies they are now taking more of a kind of comprehensive view at least some parts of those companies about the approach and there are teams dedicated to figuring out the waterside of some of their you know products and then the kind of solutions. So.

Zecca Lehn: Yeah, and I also appreciate you bringing in the migratory labor and or just the labor component because I actually think that that’s a much-overlooked aspect of this regenerative agg discussions I Really appreciate you bringing that in.

James McWalter: Um I was pivot to a different kind of sector. Um, you know 1 view. That’s all griffiths talks a lot about in Electrify America’s like we need to electrify everything. Um, you know,? let’s let’s say wood the home as as an initial stop No more gas you know gas gas cooking everything needs to be. You know heat pumps rather than driven by Fossil Fuels and so on and what do you think about the opportunities within the kind of electrify the home electrify society type type thing.

Zecca Lehn: Yeah, it’s certainly interesting I don’t know a whole lot about it I haven’t read the article. Um I think 1 thing is just gri you know grid stability always an issue things like just personal risks associated with having things overly electrified could be. You know, depending on where you live in the world I think it probably depends I would I would just I don’t want to dip into the policy discussion because I’ll probably get everything wrong, but um, in terms of opportunities I imagine you were going to see a lot of that, especially you know voluntary markets that link payments to to that. Um, I actually am still even even though they’ll counter to a lot of discussions around offsets and things I’m I’m still very bullish on the future of of offsets. Personally I think we’re going to go through multiple iterations of of what more appropriate responsible offset mechanisms and and sort of. Markets look like there’s a really great book called good derivatives which I’d highly recommend you to read or anyone to read just it goes through the original voluntary markets and the regulatory markets in europe on the carbon side and again I won’t get political here but definitely worth considering just because a lot of those things will.

James McWalter: So.

Zecca Lehn: More than likely tie in both on the consumer side but also on the on the commercial side.

James McWalter: Yeah I mean it’s interesting so offsets and derivatives This is actually where a lot of my thinking has gone on the offsets markets I think in ah in general the there’s probably a not and a lot of people disagree across climate and these are dirty words I’m about to say but.

Zecca Lehn: Dot O interesting.

James McWalter: Feel like just not enough speculation I guess on the value of a given asset and so the the you know what are markets good for right? like ah 1 of the main things they’re good for is some sort of price discovery really right.

Zecca Lehn: Finding a price.

James McWalter: And so at the moment we have a ton of very very important companies who I think are doing a great thing. You know vertically integrated companies likehammer and Ori and and these kind of companies whoever you know who are deriving acred using some sort of measurement technology or using Outsource measurement technology.

Zecca Lehn: So yeah.

James McWalter: And selling that credit to a fortune five hundred company to offset some amount of you know of credits and where I guess the breakages happen right now is that once the offset is sold. Um, the price of that offset is kind of locked in but that offset might be 3 times more valuable or.

Zecca Lehn: Hey I was aware that.

James McWalter: Ah, third more valuable and if that value is like not captured or not traded the landowner who’s the person literally responsible for keeping the forest there not burning down or like doing the farming practices is not really getting ah rewarded and so this is like a wild idea that I’ve talked a few people about and decided not to go down that direction myself. But.

Zecca Lehn: Fifth.

Zecca Lehn: You’re pitching me right now like yeah I like it I Just endorsed you come on. Now you have to make me an advisor I Thought you’re good.

James McWalter: Umm of a not quite ah but if anybody’s listening to this and wants to do this I would happily riff on this because I think this needs to be in the world but some there you go absolutely but something a lot like like like a an exchange ah rather than a marketplace but an actual exchange right? where you can.

Zecca Lehn: Ah, yeah I like that.

James McWalter: Trade things and if you do take something like a blockchain as ah as your kind of underlying technology. You could link the traded value back to the landowner. So let’s say yeah they ask if it’s traded. It’s changing hands. It’s you know it’s 2 dollars and that’s twelve dollars and it’s Eighteen dollars if you link that back to the original landowner give the landowner seventy percent of the final traded price. That they’re always getting a fair share of the captured value from the trade.

Zecca Lehn: Now I would suggest you know you giving away your ideas for free is wonderful. But I would suggest you maybe edit this part out because you know it’s just amazing like you probably have a whole business here right now.

James McWalter: Yeah, and um, honestly I hope someone does that I think but yeah, but so as I’m happy to kind of throw out those ideas and I never feel where have people stealing things. It’s a good fun space. But yeah look I’ve seemed fascinating and you know I suppose before we kind of finish up.

Zecca Lehn: I Love it.

James McWalter: You know you have this podcast. Um, what have you learned most from like hosting your own podcasts in space.

Zecca Lehn: Well I I could say that I’ve learned how to listen better. But I’m not sure if that’s true I’m just joking. It’s um yeah I’m constantly just trying to just be a better listener because like what you just showed me as you showed me that you have this.

James McWalter: And ours.

Zecca Lehn: You know, the incredible idea this invention this um this passion and if I’m if I’m too busy hearing my own self speak I’m probably you know not giving others the opportunity to really explore and again that’s out of full appreciation having me here. It’s ah it’s been wonderful. Um, I’d say for anyone who is I I always like to encourage people to do more podcasts I don’t think they’re enough Frankly I I think it’s always great to just get started and try something experiment and as you know you’ve probably learned a lot of things along the way I imagine.

James McWalter: Yeah, absolutely honestly I originally started the podcast just to they’re just selfishly learning and you know I still am very very anxious those first five guests who just take a punt on some random guy reaching out to them on Linkedin or twitterter.

Zecca Lehn: Um, yeah, it’s fine. So cool. So good.

James McWalter: Um, but now like we’re up in you know we’re up in the seventh I think this is might be the seventieth coming out or something along those lines and is a lot of work. But I guess the um and then just gabby who’s is my producer I you know she does not ninety ninety-nine percent of the work of I just talk but I guess like.

Zecca Lehn: That’s a lot of work. Amazing. So great.

Zecca Lehn: The wonderful. That’s nice.

James McWalter: You learn something different from every guest but you also start to see the patterns and I think it’s this remarkable thing where you know where we’re more. We’re more similar than we are different. The differences are still important. But I guess when I think about what we need like the types of people we need to be working on problems. Um I get more and more excited I guess doing the podcast every time about like.

Zecca Lehn: Yeah, you.

Zecca Lehn: So still good. Yeah I think you and I are very similar in this regard I like to be fully inclusive in terms of.

James McWalter: And anybody could be involved right? and there’s a role for everybody in these kind of like global scale problems right.

Zecca Lehn: Making people feel welcome and listen to and just highlight it. It’s I mean everyone deserves that it sounds like you have a similar mindset.

James McWalter: Absolutely well Zaka This has been brilliant I Guess before we finish off is there anything I should have asked you about but did not.

Zecca Lehn: Thank you? Um gosh um, well okay, here’s my chance for an ask I think I would love to get new lps into our fund. We’re raising right now under 5 ah 6 c designation so public solicitation. Just.

James McWalter: Please.

Zecca Lehn: Any lps that care about doing good and want to participate in Venture capital, I always enjoy those discussions. Ah I appreciate you letting me do that and I appreciate you having me today. James has been tremendous. Wonderful.

James McWalter: I Thank you very much Zecca I’m very really excited to see all the companies before the company is coming out of responsibly.

Zecca Lehn: Thank you

The State of Cleantech Investment -E51

Absolute pleasure to discuss the state of cleantech VC with Monica Varman of G2 Venture Partners. We dove deep into late stage cleantech investment, how covid affected the investment landscape for supply chains and food startups particularly, the agtech technologies she is most excited by, how her experiences at Tesla and McKinsey influences her approach to investing and much more! 

Download Podcast Here: https://plinkhq.com/i/1518148418