Albert Wenger's take on climate tech

Hey there,

It's almost December. Perhaps by the time you're reading this newsletter, it will be. Either way, it's time for end-of-year content. Wild!

Today's newsletter is a special one. Before Thanksgiving, I had the chance to jam with Albert Wenger, Managing Partner at Union Square Ventures. Albert is an absolutely seminal investor and thinker, both regarding climate and venture capital investing in general. 

What follows is a lightly edited transcript of our conversation covering Albert’s vantage point on climate tech right now with a touch more editorial from me.

In today’s email:

• Q&A with Albert Wenger, Managing Partner at USV

• 2023: The big stories

• 2024: What’s ahead?

EXPERT PERSPECTIVE

It got hot!

Nick: "Let's dive right in, Albert, as I know you want to beat the rush upstate for Thanksgiving. What were the biggest stories for you regarding climate and climate tech in 2023?"

Albert: "First, in 2023, we've seen an insane acceleration of actual observed temperatures globally, observed melting, observed 'everything.' This suggests we've entered a new phase of global warming and that some of the reinforcing feedback loops that scientists often worry about are in full swing. Notably, a non-trivial part of this is attributable to aerosol removal."

Nick's notes: It's true. While I don't cover global warming science much in this newsletter (because I try to focus on the pathways to progress), 2023 got really hot.

One more note on Albert's points. I find the acknowledgment that aerosols from shipping, which, while bad for human health, were previously a form of 'inadvertent' solar radiation management, interesting. Shipping, especially in the EU, has reduced aerosol emissions via legislation on shipping fuel standards. Without those aerosols, the world is getting warmer faster. Paradoxically, cleaning up our act doesn’t always result in reduced warming.

Nick: "Yeah, it does seem that we can sometimes lose sight of the big picture when we (especially I) focus too intently and too exclusively on what's happening in business." 

Albert: "It's uncanny how we have all these charts, but it's not front-page news every day."

Market dislocations

Nick: "From an investing perspective, where do things potentially strike you as out of alignment?

Albert: "I do think we've seen a potential overcorrection on nature-based solutions and carbon offsets. The whole offset debate feels malformed. It's always "all trees or no trees."'

Nick: "Yeah, that jives with what I've seen and heard this year." 

Nick's notes: For more on this topic, which we've written about pretty directly, see here. 

Albert: "And on the venture side, we have a really big Series B' hole'. Some folks and firms have been attempting to fundraise. But they've found it hard. It has little to nothing to do with the opportunity but more with where their LPs are at. A lot of LPs are sorting through some of the 'mess' from 2021. We wrote more about this at USV earlier this year." 

Nick's notes: The one thing I'll add here for context is it's worth remembering that 2021 was the height of the pandemic and zero interest rate-induced venture capital mania (e.g., crypto). 

Looking ahead to 2024

Nick: "OK, so there's plenty to be concerned about. What excites you as you look to 2024?"

Albert: "We continue to be excited about the quality of the entrepreneurs, startups, and level of innovation. We think many of the technologies and businesses can scale. That said, there are some obvious gaps that aren't yet being filled." 

One example surrounds the home electric panel. In most homes, this is an outdated device that often can't support new technology, like an EV charger. You have 2-3 companies (e.g., Span) working here, but it’s not clear to me that they've ‘cracked the nut’ on building something that's truly transformative.”

Nick’s note: The electrical panel, which often needs to be upgraded before a home can add solar panels or EV chargers, is a perfect analogy for a national and global problem. Our grid has the wrong ‘structure’ for the mass electrification we’re attempting. Here’s a meme to explain more:

Nick: "How do you think we make progress on the grid and electrical infrastructure, whether at the level of the home or the entire U.S.?"

Albert: "It's a massive opportunity – grid transformation – and it can only be accomplished by startups to a degree. It has to be both bottom-up and top-down."

Nick: "Agreed. Outside the power sector and transportation, one thing I'm focused on intently for 2024 is shorter-lived climate pollutants. Those feel underserved compared to carbon."

Albert: "Yes, charts of methane content in the atmosphere are some of the scariest. That's another example of the massive potential reinforcing climate feedback loops. As the world heats up, permafrost melts, which can release significant amounts of methane into the atmosphere."

The net-net (tl;dr)

Here’s what I took away from this interview. As readers of this newsletter know, climate change is a massive global challenge. It’s getting worse (for now). 2023 crystallized that.

Here’s some good news: Within the climate umbrella, there are thousands, perhaps millions, of decomposable, ‘niche’ challenges that ladder up to the whole. For example, Albert pointed out how many homes need an electrical panel upgrade before they can add solar or an EV charger. The same goes for something as basic as sturdy roofing when adding solar. 

None of these individual challenges, when decomposed, are insurmountable. Sure, they can add cost, time, and complexity. But they also offer ripe opportunities to build successful and impactful businesses and services (whether venture-backed or not). They’re waiting for the right financial and human capital (you?). Find your niche, study it, and loop me in.

Thanks for reading. We’ll feature many more expert perspectives in 2024. LMK what you think.

– Nick