With Over $2.5BN In Capital

While many investors grapple with signs of a potential global bear market, one sector continues to attract waves of capital, talent, and attention: the decarbon economy. Energy Impact Partners (EIP) is helping set that pace. Having just closed over $1 billion for its flagship fund 6 months ago, plus a new Frontier Fund more recently, EIP will back a new slate of climatetech companies aiming to bend all sectors of our economy toward less carbon. I caught up with Shayle Kann, a prolific speaker and head of EIP’s Frontier Fund, on how to drive climate innovation across massive, mature, and highly complex industries (where it’s needed most).

Brendan Doherty: Welcome Shayle, to Icons of Impact. Let’s jump in – when did climate and environment become a calling for you?

Shayle Kann: I was a psychology major in college, which obviously has nothing to do with climate and energy. By coincidence, one of the courses I took was called Strategic Natural Resources. We read a Dan Yergin book, and learned about the global energy system and how foundational it is to modern society. Simultaneously, I took a class that was taught by a former Southern California Edison Government Affairs executive on public utility regulation. It was an evening class and he’d walk into class once a week, chug an O’Doul’s, and start talking to us about public utilities. I loved it. I realized that climate change was this underlying driver that was really complicated and really interesting. So, long story short: I decided to just pull the thread as long as it kept pulling. And fast forward 15+ years later, I’m still pulling threads. Now it has broadened to other sectors because climate crosses almost every sector. But, it’s all just pulling the same thread for me.

Doherty: What a great story and nice segue to Energy Impact Partners (EIP), where you’re a Partner. Tell me about EIP and your unusual investor base.

Kann: EIP is a platform with a number of different funds at a little under $3 billion total. What unifies everything is we have a unique way of working with our Limited Partners (LPs). A big chunk of our capital comes from this coalition of “strategics,” which numbers over 40 now. In addition to utilities as LPs, we have real estate and built environment companies, mobility and transportation companies, technology companies like Microsoft
MSFT
, companies from other large industrial sectors, and other energy companies. It’s actually a fairly broad coalition.

Doherty: There’s a VC firm in Atlanta called Engage whose investor base are exclusively corporates. It sounds similar. Is the idea that these strategic, enterprise-level investors don’t just provide capital but also help test and scale your portfolio companies and their products? What makes them “strategic” for you?

Kann: We’re trying to mold the best of two worlds. We at EIP are financial investors, we make our own investment decisions. To the entrepreneur, we provide all of the benefits of the underwriting and financial decision making that a purely financial investor would make while simultaneously bringing the value of 40 “strategics” investing in you all at once. This requires a lot of effort, engagement, and a fairly large team. Our job is to build bridges between the young and hungry entrepreneurs that we invest in and these really big, highly-motivated but complex-to-navigate organizations on the backside.

Doherty: Can you give me a great example of how that’s worked in practice?

Kann: Sure – there are many, but one company I can point to is Greenlots, which was acquired by Shell a couple of years ago. It was an electric vehicle (EV) charging company. We invested in them early in the EV charging game and through a number of our utility partners, helped them get some of their earliest public and non-public chargers rolled out. We have hundreds of similar examples and hundreds of millions of dollars of transactions between our groups.

Doherty: That’s a great investment model. Are there other groups operating like this in the climate space?

Kann: Not to my knowledge, certainly not in our model. It’s one thing to say you have corporate LPs, it’s another thing to be able to work with them, understand what animates their behavior, and have relationships. It takes a fair amount of rigor on the backend to have relationships from the C-suite and board all the way down to the operational level. We’ve done that, which was no small task.

Doherty: When we face such a complex and large-scale challenge like climate, we often have to work with incumbents. Are you a pragmatist in that way?

Kann: I would say I feel the urgency that drives pragmatism. I have very little patience for ideals that aren’t going to lead to rapid decarbonization at scale; to me that is the singular focus. If you are able to paint me a picture of a solution that bypasses incumbents entirely, I’m all for it. However, what I find in a lot of cases is that the most realistic pathway to decarbonize at-scale runs through some existing network that you can leverage to get up to scale faster. That existing network has incumbents who are tied to it.

Doherty: Agree. Okay let’s talk about a day in the life of Shayle. Any morning rituals or habits that contribute to being successful in your role? What’s a typical day?

Kann: I have a two-month-old son at home so my personal day-to-day has been slightly upended the past few months. My days now revolve around waking up disoriented from lack of sleep, getting the house in order, and then descending into work mode. From a professional perspective, we have a number of different strategies. I am a Partner leading what we at EIP call our Deep Decarbonization Frontier Fund, or Frontier Fund. The mandate there is to invest in revolutionary technologies that can take a large bite out of climate change. We’re not afraid of taking a technology, engineering, or science risk. We are unlearning a lot of the historical lessons that VCs learned in the last cleantech cycle. A lot of my day-to-day is two things. The first is talking to clean tech entrepreneurs about doing something extremely difficult and understanding if there is a clear pathway to achieving it. The second is thinking at a high-level about which pathways are going to get us to net zero as a global economy.

Doherty: When you’re operating at the frontier of these globe shifting ideas, how do you build the team with the deep expertise needed to operate?

Kann: It is a big effort. We have the traditional investor types but we also have supplemented with a number of different groups specific to this task. For one, we have an in-house research team dedicated to doing all of our macro sectoral level analysis. They help us understand these fundamental building blocks of a net zero future so that what we invest in today continues to have value well past 2040. The second group is a pure technology diligence team. The third group is the 40 large corporate “strategics” who have an enormous amount of subject matter expertise embedded in their organization which is incredibly valuable. These are the three unique facets of our user intelligence process but fundamentally we’re still like every other VC out there, we are investing in teams. These are industries that are extremely ossified – we need teams that can batter down walls.

Doherty: Can you share with our readers some specific sectors and technologies that are lesser known but that you’re investing in?

Kann: The thing people don’t appreciate often enough is that only about a quarter of our end use energy consumption is electricity right now, globally. The other 75% is the direct combustion of fossil fuels ranging from vehicles, to industry, to heating and cooling. That is a huge opportunity space that electricity can start to eat into if we can decarbonize it and keep it cheap. I think of solving that problem as being a skeleton key that unlocks the potential to decarbonize a slew of other sectors.

Doherty: How often are you working with other VC firms to help source deals and to co-invest? Or do you operate more on your own?

Kann: I am incredibly encouraged to see the massive wave of new interest, excitement, and investment in what is now called climatetech. But I still don’t think it’s enough. There is insufficient capital being deployed in this space relative to the magnitude of the problem. Energy, transportation, buildings, food and agriculture, and industry contribute to almost all of global greenhouse gas emissions – this is the majority of the global economy. So, the Total Addressable Market (TAM) is virtually endless. That’s the scale of the problem.

Doherty: That’s fair. Although cleantech feels hot, it’s certainly not oversized. Who are some of the folks you admire most that are investing in this space?

Kann: There are a lot of folks that we admire. I spend a lot of time with Breakthrough Energy Ventures; Prelude Ventures has also been in this world for a really long time and does good work; same thing with Capricorn Partners. But it’s also been interesting to see these big corporate funds start to show up. Microsoft and Amazon
AMZN
both have big climate focused corporate funds.

Doherty: Did having a child change your perspective on the urgency of the problem or our future?

Kann: I’ve heard other people say that having kids makes them despondent about climate change in a way because they’re so terrified of the world their child will inhabit as an adult. I’ve been fortunate enough to not to feel that way. The one thing that it has done for me is that I had spent so much of my career talking about the need to achieve net zero by 2050; in my head, historically, that felt extremely distant and disconnected from me personally. I had this thought right when my son was born that he’s going to turn 28 in 2050. That brings the proximity of time front and center. That’s the time that we have to fully solve this.

Doherty: What is your view on nature-based solutions to climate change?

Kann: I think there is opportunity within nature based solutions – it’s not a separate thing. One thing that is important to understand when talking about the benefits of various approaches is what is a pure climate benefit as measured by radiative forcing or tons of CO2 vs all of the other benefits. Nature-based solutions have really clear benefits that are not all measured in CO2. From a pure CO2 equivalent perspective, they face a bunch of challenges that range from durability of the solution to verification. I am excited to see all the new technologies that are showing up to do a better job of making sure that what gets credited there is real and measurable. But I still fear what happened last time around – I was involved in originating and trading carbon credits in 2007 and 2008. That was on a pretty big growth trajectory for a bit of time but it never really materialized and kind of crashed, partly because it was never really developed and there was a resulting lack of trust in the market. This new world of voluntary carbon markets is a little more tenuous than it is often considered to be, but it’s necessary at the same time. I want to make sure that we as quickly as possible get to what feels like a robust market structure with trustworthy products that can scale.

Doherty: You’ve testified in front of Congress and talked to plenty of lawmakers and policy makers. If you could give the Biden administration one policy recommendation that would help unlock climate – what would that be?

Kann: I’m not in the business of giving policy recommendations so I will frame this in a slightly different way. Although the Build Back Better Bill ultimately failed, I did some work analyzing what the impact would be like on the types of solutions we look at. It would have been transformative for multiple decarbonization solutions and sectors. I have not seen that level of transformation from any other single bill or policy. I can’t advocate for policy publicly so I’m not pushing for Build Back Better, but I can say that, as written, it would have been a monumental achievement in terms of climate policy.

Doherty: You have your own podcast called Catalyst. Which guest shared something striking that helped change your perspective?

Kann: There are so many good ones here, I have learned a ton. There was a very recent one with Kurt House with KoBold Metals. KoBold is a company using AI to do better discovery of critical minerals, particularly those needed for batteries. What was illuminating for me was understanding the magnitude of the challenge in scaling up battery production for EVs in regards to nickel, lithium, cobalt, and copper. The scale of the geopolitics involved to reorient the world from extracting fossil fuels to extracting those minerals will change everything.

Doherty: How can our readers support you after reading this? What’s one thing you need?

Kann: Everybody has a role to play here. There are so many organizations in the world of climatetech that have spun up that are set up to help you apply your unique skills in pursuit of climate change solutions. I encourage readers to seek out those venues and figure out what you individually can do. Specifically, if you have a technical or scientific background, there is a really warm embrace of a market and funding environment waiting for you if you decide to dedicate all of your scientific talents to the big problem of decarbonization. It is a great time to apply fundamental science to climate problems. Find your home.

Doherty: Thanks Shayle, I enjoyed this.