Adam Torres and Andrew Karsh discuss the venture capital ecosystem.
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Show Notes:
Can Climate Technology generate outsized performance for investors? In this episode, Adam Torres and Andrew Karsh, General Partner at Bay Bridge Ventures, explore the Founding of Bay Bridge Ventures and its focus on Climate Technologies.
About Andrew Karsh
Andrew Karsh has twenty-five years of financial markets experience, directly managing large pools of complex institutional capital and advising C-Suite executives globally. Prior to Founding Bay Bridge Ventures Andrew served for ten years as Portfolio Manager within the Investment Office of CalPERS, a $500 Billion public pension fund. In addition to his direct investment responsibilities, he served as a member of the Absolute Return Strategies Advisory Board and has worked to advise the organization regarding Private Equity opportunities.
Outside of his daily role, Andrew has spent the last eight years advising and investing in disruptive startup companies across all industries, and the last three years as part of the advisory team to Berkeley’s top ranked SkyDeck Accelerator Program. He was also nominated in 2019 to represent CalPERS as a member of the United Nations Sustainable Development Goal’s 30 organization GISD working group, which has tasked thirty of the largest financial institutions globally with creating investment opportunities that will support the success of the seventeen critical UN SDG initiatives.
About Bay Bridge Ventures
Bay Bridge Ventures is an Institutional Sustainability focused venture capital firm, purpose-built from the ground up as a diverse-owned and managed organization investing in scalable, profitable, and impactful companies across technology sectors while providing transparency through its industry-leading impact reporting process.
Bay Bridge Ventures was founded on the belief that solutions to the world’s hardest environmental and social problems will be accelerated by the advancement of foundational technologies, such as AI & Big Data, Advanced Computing, Sensors & IoT, High-Bandwidth Connectivity, Energy Storage, Robotics and Synthetic Biology.
With a world-class team and scalable institutional investment strategy centered around meeting the top tier returns and sustainability mandates of sophisticated asset owners globally, Bay Bridge Ventures invests in early to mid-stage companies focused on Climate Technology.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest on the show, just head on over to missionmatters. com and click on Be Our Guest to Apply. All right, so today’s guest is Andrew Karsh, and he is a general partner over at Bay Bridge Ventures.
Andrew, welcome to the show. Yeah. Hi, Adam. Thanks for having me. All right, Andrew. So , we got a big topic here today. So , how climate technology will generate outsize performance and the venture capital ecosystem. So interested to get , your take and your angle on this. And I guess just to get us started, even before we go that far, how’d you get into the space?
How did it suck in? Yeah, thanks, Adam. It’s a good question. , typically people have different avenues of getting into venture capital. Mine happens to come from a unique perspective, which is, , spent the last 25 plus years managing investments for some of the largest institutions in the world.
So, , started in New York and London, and then got recruited by CalPERS, which is the largest pension fund in the US with about 500 billion dollars under management back in 2011 to build out all their direct alternative investments. And so. That brought me to the bay area and san francisco and I just really got hooked on, the technology ecosystem and venture capital and kind of really building things as opposed to fixing things, right, which is what typically happens in a lot of investments.
And so, , after spending about 10 years managing, , more than 5 billion for, for CalPERS, , I’ve been already pretty deep in a venture ecosystem and, , investing and advising early to mid stage startups saw this, this opportunity for, , a gap in the market, which is, , how do we generate, , top decile returns.
In the venture capital ecosystem, but being focused specifically on on climate technology. And, , this is an area that, , back in 2018, 2019, when we first started working on the firm was really, , focus not only of institutional investors globally, who said, look, we want to align with our, our strategic goals around sustainability, but also.
, we need to generate outsized returns as fiduciaries for our underlying holders. So just as an example, CalPERS represents 2 million people across the state of California who have their pensions there. And this is the case, whether you’re in Europe, Asia, Australia, and other places. And so it was really about creating a firm that from day one was really intentionally built to meet both of those needs, right?
the generating top tier returns across the venture ecosystem, but also the strategic goals around sustainability. And we really ended up doing that in a, in a clear way through launching this firm. And I’ve got 2 amazing partners, Joe Blair and Kim Cole to have been specifically investing in climate technology for the last 10 years.
And so it’s really about, , from day 1 meeting the needs, not only of institutional investors, but, but family offices, , at the same time, there was research coming out from UBS that 85 percent of ultra high net worth families were looking for investment opportunities that. Not only met their return goals, but also their their strategic goals around sustainability.
And five years later, we see, , the ongoing impacts of climate change on a daily basis, whether it’s fires in California, or, , floods in Australia, it’s just something that continues to be proven as a, as a major challenge, not only for individuals, but for businesses who have significant risk in these areas.
And I love that you bring this up and you’re, and you take it completely from a VC angle because sometimes people , they, maybe dismisses the wrong word, but, they feel that sustainability and this is kind of a trend or a fad. And I’m like, it’s a trend. It’s not going anywhere.
Like it’s here. And then there’s cases for, , like outsized returns in this area. Like can you speak on that a little bit further? Cause , I just like to drill it down for people. Like it’s here. People are voting with their dollars. Investors are voting with their dollars. Consumers are voting with their dollars.
Yeah, I completely agree. , and it’s interesting cause it’s very different in each, each asset class. So , if you think about the traditional, , the first people through the door were there. ESG mutual funds, right? By the major, major firms like BlackRock and others. , and there, , you’re kind of making a decision to, to not invest in oil.
So you’re investing in other companies and, , that, that performed well when oil was down during the pandemic and then not so well on a relative basis when oil rebounded. , so for us, it’s really about, , specifically focusing on technology companies that already have , proven revenue, scalable business models and widening margins to generate.
It’s outsized return. But to your point, , a lot of the time I spend is actually educating investors, both, , individual and institutional about, , the fact that, , we’re not offering concessionary returns, either the goal first and foremost is to generate outsized returns in our firm has a, a top decile track record across all venture funds over the last 10 years.
But, , doing it in a way that you’re getting not only differential returns versus traditional, , software and other common venture strategies. But taking advantage of this kind of global wave of investment into sustainability. So, , even though there’s some political dynamic around the topic in the US, outside the US, this is really, , one way, , 20 year opportunity where, , even, , in Europe, there’s the EU regulations, which require reductions in, , Greenhouse gas emissions for, , production of any goods, whether it’s automobiles or food or or anything along those lines.
But even in Asia, China recently announced that the top 500 listed companies are going to have to report their greenhouse gas emissions for the 1st time, which, as we know. Once you report it, then all of a sudden you need the technology to reduce the greenhouse gas emissions. And in Korea, they recently announced the 300Billion dollar climate change initiative.
And so on a global basis, this is really, , what we see is the, , 20 year opportunity the same way 20 years ago, , Mark Andreessen said, , software is eating the world and, , it became integrated into every part of society while sustainability is having the same wave now and it’s backed up by, , these global initiatives to reduce greenhouse gas emissions.
And, , the companies we’re investing into are really market leaders in this space. Hmm. Can you go and this brings me to I want to go a little bit further into what like segments of climate technology you find interesting, and it doesn’t have to be something you’re invested in. If you want to, by the way, you’re more than welcome to name something or to plug a company.
don’t mind. But like what, what technologies in climate, like, , do you find interesting or on the top of your mind? Sure. , it’s a good question because, , as I pointed out before, there’s different Like every , venture capital strategy, there’s different ways to approach it.
And so we don’t get involved in the kind of high capex moonshot projects, really because, , we’re looking at generating outsized returns for our investors now. Which coincidentally also means that we’re, , reducing greenhouse gas emissions now, right? So companies that are already profitable, , currently are already moving the needle.
Whereas some of these, , companies that , other investors are focused on have 20 year opportunities, but we need technologies. To really fill that gap in the next 20 years. But so just, , perfect example, we invested into a company called a sale plan that made the 1st ever carbon emission tracking for the maritime industry.
And so you would think this is sort of like a interesting, but not that. Profitable business. But in reality, they’ve got a few benefits going for them, right? One is they have this data that previously couldn’t be achieved for, , the customers, including the BMWs and Mercedes and Amazon and Apple, who either have a requirement or voluntary commitment to greenhouse gas emissions reporting, but also they’ve reduced the fuel costs for shipping by 30 to 50%.
And so, , the companies we look for are. , need to be not only economically advantageous to their customers but also have this, , sustainability angle. So, , we’re really not focused on companies that require subsidies because we know those don’t last very long.
But, , this company in particular, you’re not only are they working with 20 largest shipping companies in the world. They’ve got a number of major cruise lines, but they also have a contract now with the U. S. Navy. Right. So these are contracts that, , again, we’re focused on B to B companies that have sticky revenue and widening margins.
And this is just the perfect example, because when you think about. The challenges with the sustainable supply chain, , the at the center of the global supply chain is a shipping industry. And they’re historically have been 1 of the largest polluters. And so so for us, this is just a great example that, , a company that has, , significant exponential growth and revenue, , very high margins.
And ongoing growth opportunities to really become, , market leader in the space. And once they get integrated into this data set and supply chain, it’s really difficult to, remove them. And so, , that’s the way we think about the market is, , really are focused on companies that have, , as I said before, a proven business model, , technology that already works, already have revenue generating and have, , scalable business models with widening margins.
What size are you looking for, like of company? I know you said revenue producing. Is there a specific, like, where are you coming in at usually? Yeah, sure. In terms of the stages, we’re investing late seed in Series A, and then we can follow on through Series C. , part of that is really about helping these companies bridge what was traditionally known as the, , the valley of debt, right?
So the, the challenge that, , the climate technology ecosystem had 10 years ago was, , a lot of the companies were unproven technologies and unproven business models and they could get, , pre seed and seed stage funding, but then they would go to raise a series a and traditional vcs would sort of put their hands over their ride and say look, We don’t see how this scales the same as a software company and a lot of those companies didn’t survive, , and if we recall Actually, even tesla In 2008 was bailed out by the federal government with a 400 million loan.
And so, , it’s the goal to really kind of have companies that have sustainable business models that can grow on scale to be, , billion dollar plus companies. And, and interestingly, , whereas historically you would think, okay, the only exit opportunities going public, , a lot of the companies are now being acquired by strategics or even, , interestingly enough in the The carbon sequestration industry, , a number of the larger acquirers have been oil and gas companies like Occidental.
And so, , the exit opportunities are continuing to expand is the broader supply chain of whether it’s, , energy production, whether it’s shipping, whether it’s, , the fashion industry. , every website that you look at now, whether it’s Nike, Louis Vuitton, Tesla, or, , like oil and gas company has a sustainability page.
And that’s really because this is something that their stakeholders are expecting, right? Whether it’s their shareholders or their customers, , this is, this has now become a , a baseline, not an, not a far reach expectation. Hmm. What do you look for in in either the founders or the founding team?
Like, what do you look for in that way as you’re making a decision to invest? Sure. , like, like any venture capital investor, you were looking for founders that have industry expertise, , a drive to survive in these, even in these difficult markets. Right. I mean, again, , we all recall in 2000, 2001 and before it was pretty easy for, for companies to raise money.
It was growth at all costs. Don’t worry about profitability. I mean, clearly now the environment has changed for every every founder, including in a climate technology space. And so we’re really looking for founders that have the tenacity to kind of push through the current environment in a cost effective way, but also.
Who have a vision as to who their customer base is and how they’re going to continue growing their sales year over year to become, , as I said, , a market leader in their specific space. Talking about, and I know we’ve used this word once or twice so far, and I just want to maybe drill down a little bit further here.
So, outsize performance in the climate technology space, , over the next 10 to 20 years. do you think this is so attractive? Why do you think there’s a chance for not just, , good returns, but outsize returns? Or, , interestingly, , there’s, there’s lots of markets that are evolving at different speeds.
Currently, right? You look at artificial intelligence and, , the valuations there are pretty lofty. I think is an underestimate today. Andrew. Thank you for that. Sir. No, go ahead. I know, I know, so. So, so from that perspective, , we look at companies like that that are standalone AI companies and clearly there’s a lot of money chasing those opportunities, but, , as we saw in every other, , technology trend or, or, or new technology, whether it’s the browser or whether it’s, , cloud, things like that, , it tends to consolidate.
So, , really, , the interesting opportunity for us is, , not only in. The climate technologies that are allowing their customers to meet specific needs around their, their business model, their transparency requirements or voluntary commitments. But also again, like I said before, all the companies that we’re looking at are cost efficient, right?
So if you have a customer and you can offer them a product that not only reduces their costs, but increases their sustainability, it meets 2 of their strategic goals. And one and so that’s really where we see the opportunity. And as I said earlier, the continued expansion of requirements and or incentives.
Globally for reducing greenhouse gas emissions as part of the, , resolution to this, this, this bigger change. And so, , it’s the integration of these new technologies into the supply chains, , the same way 10 years ago, there were a few cloud providers. Now, there’s many more and a large consolidation in the space, , it’s a technology that we see is the kind of 20 year opportunity where.
This is getting integrated into companies that never would have thought they would have done it before. Right? I mean, , if you look at any of our friends who bought a Tesla five years ago, sort of pat themselves on the back and said, Oh, look, I’m saving the world. And now, now people aren’t, it’s just about buying an electric vehicle, right?
It’s about, , where’s the cobalt coming from in the battery or where’s the, , aluminum coming from in the, in the frame. And so people are getting a lot more well educated about, The input in the carbon footprint of what they’re buying, but also, , the impact on on cost as well. Yeah, I think that Tesla example, not to pick on Tesla, but it’s more so to just talk about the evolution of the awareness of consumers, I think is that I agree with everything you said in terms of like, up to this point, but like that evolution Of of the awareness of consumers that does drive, , obviously commerce to a certain extent, like with the attest example that you’re mentioning, but I, and I remember that, like, everybody’s like, Oh, the battery, the battery, and now they’re like, now we’re like, wait a minute, should we have been doing this?
Should we not? And obviously there’s going to be some, , hiccups and anything, and there’s going to be some, corrections and things will get better, but the baseline I feel like for just public awareness is that gets further and further down the line. I think I feel that’s just going to add to the opportunity.
Yeah. And to your point, , if you think about. , even five years ago, , there were one or two sustainable sneaker companies, for example, and now every sneaker company has a sustainability component or or a recycling component. So, so, , really, , where we see is the things that were five years ago were nice to have are now, and then the bar will continue to raise.
Across the industry about what’s expected. , again, we really don’t focus on the consumer products. I just because we think the trends are too fast. Yeah, but on the industrial side with the B to B businesses, , as they get integrated into their manufacturing facilities and supply chains, , that’s that’s the long term opportunities to is to provide products and technologies that are not only cost effective, but also increase the sustainability of their, , their production.
Great. Well, Andrew, this has been really a lot of fun. I appreciate you giving me some insight into what’s going on with climate technology and also the work that you’re doing over at Bay Bridge Ventures. That being said, if somebody wants to learn more, if they want to follow the journey and check out what you’re up to, how do they do that?
Sure, , in terms of the information, I would suggest either a, , feel free to follow me on linked in and we post things pretty frequently or we also have a website Baybridge VC dot com that has information. But, , again, if somebody’s interested in learning more about what we’re doing, feel free to reach out and we’d be happy to have a conversation to provide more details.
That’s wonderful. and we’ll definitely put your link in the show notes and all that other good stuff so that the audience can just click on the links and head right on over. And speaking to the audience, if this is your first time with Mission Matters, and you haven’t done it yet, you Definitely hit that subscribe or follow button.
This is a daily show each and every day. We’re bringing you new content, new interviews, and hopefully new insight. That’s going to help you along the way in your journey as well. And hopefully a little bit of inspiration in there too. So again, hit that, hit that subscribe or that follow button. And Andrew, again, thank you so much for coming to the show.
Really been a pleasure. Great. Thanks for having me, Adam.