A few years ago someone wrote a post along these lines:

“every VC thinks the investors investing earlier than them is a gambler, and everyone after them is a quant, sleepy investor”

The statement gained attention as early stage investors claimed rigor and the later stage investors claimed excitement. I know my sweetspot- investing post technology risk and at the inflection of commercial adoption. It is where I can gain a competitive advantage and the stage where my “CRO” mindset can help out the most. This is also where Energize Ventures naturally invests: late Series A to Series C.

Just made my first pre-seed investment ever.

You super early stage people are CRAZY. 😜

— John Tough (@JohnJTough) June 7, 2021

For a host of different reasons, I made my first SUPER early stage investment yesterday. The entrepreneur was a spin-out from one of our portfolio companies and a number of his colleagues (and our portfolio company CEO!) also invested. The product is surprisingly commercially advanced but definitely way earlier than the Energize risk profile. I don’t intend to make these early stage investments often and I don’t have a pattern for consistent evaluation yet. What I do know is that ultimately I made the investment almost exclusively due to the entrepreneur and seeing his product skills at our portfolio company and his scrappiness with the new endeavor. Maybe that is the framework at this stage: entrepreneur 90%, big market 10%. I will keep you posted. And yeah, it is a little crazy.

With net zero emissions targets now the topic du jour across the corporate landscape, there is suddenly a ticking time bomb for these same corporates to neutralize their emissions at the specified 2030-2040 time frames. Most firms now realize that they won’t be able to fully eliminate hydrocarbons from their supply chain or materials. So, the next step for these corporates is to think about what other investments they can make to counter their carbon footprint. Enter the (usually voluntary) carbon removal marketplaces or renewable offset marketplaces.

There are a number of marketplaces that serve this need, but an issue for mass-market adoption has been:

a) Credibility of the project providers and the scale of offsets (over-promising or dubious metrics)

b) Technical exclusivity of the offsets (many projects are sold multiple times)

The above issues have caused for “greenwashing” and a slight distrust in this market that ultimately yields a highly unpredictable price on carbon removal or offsets. And uncertain prices keep the main customers (corporates, primarily) on the sidelines. The market needed a credible middleman/marketplace creator to accelerate adoption.

Enter NASDAQ

This is where Nasdaq’s entry into the space makes a lot of sense. Nasdaq manages one of the most complex, high volume transaction marketplaces in the world.. a stock exchange. Yesterday, Nasdaq announced the acquisition of Puro Earth and immediately brings the entire Nasdaq customer base (both the listed companies and the investors), the market-making technology know-how, and accreditation to the carbon removal ecosystem.

Who is Puro Earth?

Puro.earth, a leading marketplace for carbon removal. Puro.earth is the world´s first marketplace to offer industrial carbon removal instruments that are verifiable and tradable through an open, online platform. The platform already provides carbon removal services to some of the world’s leading corporations, including Microsoft and SEB.

Why could this be a smart deal?

The NASDAQ corporates will immediately trust that Nasdaq can solve many of the existing carbon removal issues. I am assuming that Nasdaq can leverage existing technologies and securities packaging techniques to provide accreditation and exclusive attribution for each carbon removal project.

Once there is greater comfort in exclusivity and attribution of projects, more buyers will enter the market. This will cause the market to reach a near-term steady-state supply/demand price structure. This price confidence will then enable more project developers (carbon sequestration, etc.) to initiate projects as the developers will have higher confidence in the RoIs for those prospective projects. Again, market settlements and price matching are a Nasdaq core skillset…

Net, a win for the ecosystem to see a true financial marketplace enter the carbon capture arena.

This deal wasn’t announced in late April so it isn’t exactly breaking news. But I have had more time to work through all of the ongoing dynamics in the supply chain for the energy and industrial transition.

There seem to be 3 key trends converging here:

1. Rapid consumer / corporate interest in transparent supply chains and the need to definitively source materials in a responsible way
2. Change in types of raw materials going into new products: minerals, other sustainable alternatives
3. Movement from just-in-time to resilient supply chain planning, which includes onshoring manufacturing

These are all foundational changes. At the same time the OEMs are realizing that just being in the manufacturing arena is a race to the bottom on margins.

I haven’t covered a number of the industrial M&A events over the past year. But a great company that was riding all of the above trends was Blue Yonder, and earlier this year Blue Yonder was acquired for $7 billion by Panasonic. Why is this an example of the future of supply chain? As described by their press release, Blue Yonder uses machine learning to help companies manage supply chains that connect factories to warehouses and retailers. Panasonic, one of the largest battery makers in the world (for Tesla) wanted to move from contract hardware into software and higher value add services. Blue Yonder had $1 billion of revenue with $344M of ARR at year-end. That means that Panasonic paid ~7x revenue or 20x recurring software revenue for the business. Panasonic is paying this premium because Blue Yonder will begin to move Panasonic’s industrial presence more into the data and software verticals. Smart move. Manufacturers realize that they need data and controls from process sourcing all the way to endpoint delivery. Being a manufacturing middleman is a dying position of the past. This may cause us to see more industrials re-bundle – but this time with software – after decades of disassembling behemoth and disparate manufacturing units.

I suspect we are going to see more industrials or OEMs seek inorganic growth by purchasing firms with access to supply chain analytics or firms that enable access to one of the 3 key trends identified above.

I saw this graph from the IEA a few weeks ago and it hit home on a topic those closest to the energy transition know: the energy transition is going to require a LOT of minerals.

These minerals are going to require a new approach to sustainable mining and a more prepared recycling strategy for the new energy pioneers. Supply chains will need to be reimagined and commodity price volatility managed. Finally, new geopolitical relationships and tensions will form. Net, certain parts of the carbon and new energy economy will look quite the same…

Jupiter Intelligence is a climate risk technology and analytics platform. Energize initially invested in the company in Q1 2019. We invested in Jupiter because we truly believe in Rich Sorkin and Eric Wun’s vision for the future of climate risk. As covered by Jeremy at the Washington Post yesterday, Jupiter’s vision and product are no longer a future requirement. Rather there is 10x year over year increase in demand for the company’s technology platform. Some snippets below:

Business booms at climate risk start-up as threat from extreme weather grows

By Jeremy Deaton – May 27, 2021

For most companies, the end of the pandemic has meant slowly getting back to normal. For Jupiter Intelligence, a climate risk start-up with headquarters in Silicon Valley, the recovery has led to a massive surge in business.

Jupiter helps companies gauge the threat that climate change poses to their bottom line, and it has seen a rush of new clients as business leaders look to the looming threat of extreme weather. Chief executive Rich Sorkin said Jupiter booked more than 10 times as many contracts in the first quarter of 2021 as it did in the first quarter of 2020.

“I think that the pandemic, for us, was a bit of a double-edged sword,” he said. “On the one hand, we had this near-death experience. On the other hand, once people got past the pandemic, they were like, ‘Oh, what else is there like this that we’re not worrying about that we should be worrying about?’ And climate change is at the top of that list.”

“It’s just like cybersecurity 10 years ago, when no one knew what cybersecurity was,” Sorkin said. “Now, there isn’t an entity on the planet that doesn’t have a cybersecurity or security solution that, in large part, depends on some third-party cybersecurity company. And this is going to be just like that.”