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Interview with Chris Berkner, Founder, One Earth Capital
INTERVIEW HIGHLIGHTS
- Find out what the #1 thing “green VC’s” look for in the companies they invest
- How personality can get in the way of your company funding?
- What do Darwin and Edison have to do with your company getting money?
- “To get anything really difficult done usually takes at least five phone calls, most people stop at three.” Find out how this relates to success…
- “No technology is so great that bad management can’t screw it up.”
LISTEN NOW (press play below)
TRANSCRIPT
Bill Baren, Green Business Innovators: This is Bill Baren of Green Business Innovators and I am here with Chris Berkner, the Managing Director of One Earth Capital, a venture investment firm in the San Francisco Bay Area. One Earth invests in early stage companies involved in sustainable technologies. They specialize in agriculture, water and energy sectors. They look especially at technologies that are decentralized and mitigate the causes of global warming. Thank you, Chris. Thank you for being here. I’m excited to have you on our show.
Chris Berkner, One Earth Capital: Thanks, Bill.
Bill Baren: So tell me a little bit about how the company got started.
Chris Berkner:
Bill Baren: What made you decide to go into the green space to begin with?
Chris Berkner: I’ve a personal passion for nature and for the well-being of the planet and for the well-being
of the people of the planet. So in One Earth Capital, the name itself is an embodiment of vision that I have of a healthy planet for healthy people. And I always had a technological and entrepreneurial bent, so I think those interests collided in such a way to catalyze this particular endeavor.
Bill Baren: Yeah, yeah. So what’s your process of picking the companies that you invest in?
Chris Berkner: Well, we’ve identified the three sectors that we’re most interested in and the overall business strategy that we’re pursuing which is decentralized sustainable technologies in agriculture, water and energy. We’re interested in that particular strategy because we see global warming already happening. We’d like to invest in technologies that will help people and the environment deal with global warming and its effects, while, ideally reducing global warming itself. Some technologies are able to do all of that, some technologies are able to do some of that; and we see agriculture, water, and energy as three sectors that are closely related to the changes that are happening on the planet. So given our overall scope of investment, we looked at companies that come to us and see whether they fit that particular model first and foremost. In some cases, we are analyzing particular sectors within any one of those fields - agriculture, water and energy. So for example, waste energy. We might analyze a very particular segment of the waste energy market and look for companies that are operating in that particular segment and actually contact them and find out more about them and ask them whether they’re looking for investment if they seem like an interesting opportunity or interesting technology. But more often than not, I would say we’re looking at deals that are coming to us through our network of investors and entrepreneurs.
The things we’d look for right of the bat, besides the fit with our mission, are the benefits to the environment, the kind of the game-changing nature of the technology. The more game-changing a technology is, the more interesting it is to us. If something’s going to increase the energy efficiency by 5 or 10%, that’s not as interesting as something that’s going to increase energy efficiency by 50-60%, for example. Or, if someone can make a solar panel for half the cost of today’s solar panels, that’s a lot more interesting than a company that can make solar panels for 10% less. So the game-changing nature of the technology is important, if there’s a fit with the team. The team we look at from different angles. One, the values of the team and the interpersonal chemistry that we experience with the team. We want to work with people we like and where that feeling is mutual. It’s really important to have trust and respect on the board as we move forward with the company. Then of course, there’s the team’s experience and their kind of credentials within their careers and within the sectors that they’re working in. Track record is obviously a big plus - has the CEO has started successful companies in the past?
Bill Baren: So would it matter if the CEO has started a company in the past in the same sector? Or, just the track record, overall, for the CEO and the other team members?
Chris Berkner: The more relevant experience they have, experience is relevant to the endeavor they’re working on right now, the better. But in general, it depends more for a CTO, I would say. You know, a technologically oriented founder or a technologically oriented team member, the exact experience and the exact industry is maybe a little more important than general. Or, often, with sales executives or business development executives, because when they’ve got contacts in the exact fields that they’re working in, that gives the company a huge edge over a company that doesn’t have those connections or doesn’t have that specific technical knowledge. But I would say CEO’s, there’s a lot more slack for them to have come from other industries or other sectors because they have the experience of starting companies and it’s more about leadership and execution, in general.
Bill Baren: And is it important for the CEO itself to feel eco-authentic to you?
Chris Berkner: I would say it’s important for the CEO’s goals to be in alignment with ours. So on a personal level, do they have to drive a Prius and to have solar panels on their house? No. But if their goal is really just to make money and they’re not really in any kind of ecological vision, then I would say it’s just unlikely that they would pick us or that they would be a good fit of values and chemistry on interpersonal level.
And going back to your earlier question, I would say, one of the huge criteria for whether we pick a company is the size of the market and how readily, we think, the technology will be adopted. And how far along the company is with their technology and if they have a working prototype it makes it a lot more interesting to us than if they’re still in development phase.
Bill Baren: It sounds like you balance the ecological impact with how fast the investment will come to fruition as well.
Chris Berkner: Right, and that has two parts. One is, you know, we have to be sustainable as a business so we need to make investments that are going to make their returns. And two is, the more quickly a technology can permeate the world, the more of an impact it’s going to have ecologically.
Bill Baren: Right, right. So you’re mentioning that one of the things that you look for are the game-changing innovations. Right? So do you find that the game-changing innovations take a much longer time to come to fruition than anything else or is it just random?
Chris Berkner: Interesting question. I think it would really depend on the particular sector and the particular technology. I’m not sure that there’s a strong correlation there either way. If something is game-changing and it fits right in and, it’s a technology that replaces an existing technology easily, then it’s more likely to actually change the game instead of have the potential to change the game. If something, you know, if we’re to start doing things really differently in order to take advantage of a supposedly game-changing technology, that technology may never change the game because people may never get around to using it.
Bill Baren: Right, right. So what you’re almost saying is that the marketplace needs to be ready to adopt the game-changing technology because the game-changing technology, on its own, doesn’t necessarily mean that it will be adopted.
Chris Berkner: Right. Quick adoption is a huge plus and dange is about–we look for, what we see, the possibility of flow adoption is a significant risk because we’re often investing very early in the company’s development and if the company takes several years to get traction in the marketplace. Especially if they have a high burn rate, then our money may be gone within one or two years and the company may not be able to raise additional capital to continue. And, a lot can happen in three or four years, you know. For any really great idea, there are usually at least two if not multiple people who are developing that idea at the same time. If you look at evolution, developed by Darwin and … I forgot the other’s guy name — but pretty much within one year of each other. And I think you could see that similarly with various important technologies throughout the world. I think Edison and, whoever the other guy was that history forgot, he also developed the light-bulb, etc.
Bill Baren: Yes. It’s really funny that in both examples, we remember the one that really made it and the other one somehow gets lost in the shuffle.
Chris Berkner: Exactly my point. Which one is going to be lost in the shuffle and which one is going to be the next Apple.
Bill Baren: Exactly. We’ve just been able to distill what it is that you do and in a couple of sentences, you know, you’re picking the Edisons of the game. Right?
Chris Berkner: Right, and a big part of that is marketing. I mean, we like to see companies that have a strong marketing orientation and go-to-market strategy. There’s a good quote from another VC we know who said something to the effect of, “No technology is so great that bad management can’t screw it up.”
Bill Baren: Yes, and part of the bad management is the lack of marketing or the lack of marketing, sort of, being marketing-driven is an important element of being able to get technology to adopt. Right?
Chris Berkner: Yes, I mean, you could create a pretty long list of all the ways that bad management screws up companies and failure to market correctly or, etc., is one of them.
Bill Baren: Yes. So speaking of marketing, I’d like to find out a little bit more about your company and so, what is the One Earth Capital brand? And also, what really is your differentiator or what separates you from the rest?
Chris Berkner: Well, there are a few things, I would say. Number one, we’re authentic in our commitment to ecological values. I would say there are a lot of venture capital firms out there that have gotten into the clean tech space because there’s money to be made and not particularly because there’s any commitment to the environment. I would even venture to say that’s probably the vast majority of the clean tech VC activity, but there are definitely other VCs out there that have real environmental commitment. So that would be number one. Number two, is that…
Bill Baren: I know one of the things you talked about was this whole notion of decentralized technologies. Would that be one of your differentiators as well?
Chris Berkner: Yes, I was just thinking of a couple of things. One is the decentralized focus.
Bill Baren: By the way, what does that mean for listeners that don’t know?
Chris Berkner: Right. So we’re not going to invest in technologies that require huge capital expenditures in large plants. The largest sized plant in terms of technology that we would invest, it would be a technology that would service a small city of like 50,000-60,000 people. So a big wind farm that’s going to provide energy for hundreds of thousands or millions of people - those kinds of technologies are not what we’re interested in. Which is a little bit ironic because we actually started out by looking at a wind farm developer. I only think that’s part of how we came to our conclusion. But we were looking at technologies that will proliferate on an individual scale or farm level or town or small city level. It’s kind of like the Internet. If you think of big mainframes of the past and then the development of the Internet, which is a decentralized technology that enables people to do things like what you’re doing right now. You don’t need to be on television broadcast network to broadcast this program. You can do it because of the Internet basically. Similarly, mobile phones became prevalent throughout the Third World at roughly the same time, they were becoming prevalent in the First World. Now, they’re pretty much the only way that people in the Third World communicate with each other, an emerging market.
Bill Baren: Right. So would that like the Utopian version of this would be that every human being would be able to get all the energy that they need and with whatever technology that they can possess in their own person? Is that sort of thing?
Chris Berkner: So technologies that enable the home or the farm or the small community to provide their own energy or treat their own water or grow their own food sustainably, those are the kinds of technologies that we see are enduring and likely to prevail as we go forward. There are exceptions, I think, there are certain technologies that really work better on a less decentralized scale. I think there’s a continuum between centralization and decentralization in every technology and every technology has its sweet spot. So for water treatment, for example, and there are maybe many examples in which particular water technologies are most effective in a slightly more centralized level. But in general, oriented more towards the decentralization and partly it’s because decentralized systems are more inherently robust. As global warming heats up, we don’t really know what the effects will be on the centralized or macro systems that we live in today. And as the emerging markets are developing their societies–look at India, for example.
They don’t have the ability to build up their grid the way that we have. So supplies them energy that are local are just going to make more sense for them. Obviously, India and China, these emerging markets, are playing more and more significant role globally to the point now, I’d say, they’re of equal or greater significance in terms of technological development that’s actually happening in the world today. Or, I would say, the spread of the technology in terms of its implementation is happening extremely rapidly in those areas. We’re talking about the future of the planet, you know, and technologies that are going to address those markets, and we think decentralized markets, I think, that will do that decentralized technologies.
But I want to get back to your question of what differentiates us. I mean, one of the things that differentiate us is that we really want to see the companies succeed, not just so that we become successful, but because we want their technology to be successful in the world so that the world can benefit from its psychological impact. It doesn’t mean that we’re–we are a for-profit entity and we need to make money in order to continue to exist. We like to see our companies make money and we have to consider those business issues and we look at deals in very similar ways in a lot of respect to other VC’s. But I think the way that we think and make decisions on a board level, we like to think, at least, that it’s coming from a place of great integrity. I think there are other VC’s that are operating from a similar place, but not necessarily all of them, by any means.
Bill Baren: Yes. So I’m hearing a few sort of themes, that the fact that you’re authentic, the fact that there’s integrity level that’s a part of the value structure of what you’ve got going on, and on other aspect, there was this that you’ve been able to pick a certain element that you believe in like the whole decentralized, you know, water, energy, and what was the third thing?
Chris Berkner: Agriculture.
Bill Baren: And agriculture, allows you to have a really solid brand. So you know who your targets are and they know that you are their VC Company.
Chris Berkner: Hopefully, yeah. One more thing I would add that really differentiates us–and I think this is an important part of our market niche–is that we are early stage investment, primarily, whereas most VC firms are looking at making, in essence, at least say $5 million. They will often say that they will make investments in very early stage companies, but the reality is that they–at least from what we can tell–they rarely actually do. Then there are angel investors or individual investors–often retired CEO’s, etc.–who will make very small investments, let’s say $100,000 each and they’ll often pool together in angel groups to make investments of maybe a million dollars.
We are kind of in between there or we’re looking at investments of ideally around $2-3 million and we definitely have a range where we’ll make small seed investments and then, kind of going up to the $2-3 million mark and then falling on in successive investment rounds, with again $2-3 million. But there aren’t too many players in that space which has been kind of nice for us in terms of developing a niche. You could pretty much count on one hand the other players in that clean tech space that are looking at deals of that size. I think we facilitate a lot of companies in getting the capital in a size that they need where they might, otherwise, have fallen into a gap between the angels and the VC’s where they cannot quite get traction.
Bill Baren: Yes. I figure if the hybrid automobile can get traction in the industry, perhaps a hybrid VC company can also get traction in the industry as well.
Chris Berkner: Yes, so far we have and it’s been a surprising kind of advantage that we didn’t plan on when we started out.
Bill Baren: So I want to ask you about yourself as it relates to your business. So what’s your own personal strategy in becoming a thought leader in your own industry?
Chris Berkner: You know, I would say that, in general, a lot of VC’s are thought leaders in the world. It’s kind of like going to Harvard and thinking that you’re going to be top of the class. I don’t necessarily have that ambition or expectations that I’m going to be anymore of a thought leader than other VC’s out there. In general, VC’s are looking for cutting edge technologies that are going to change the game. I think there are some VC’s that are playing in the clean tech space because they really actually care about the environment. They are constantly on the edge of new technologies and new ideas, and in the same boat, I would say in that regard. What am I doing differently in terms of becoming a thought leader? I think, you know, some of the things that I mentioned before about our values and making decisions that are kind of reasonable and to benefit the company. I would say, on a personal level, I try to access my intuition as much as possible. I’m sure that there are many other VC’s out there that do the same thing or do similar things. But I think the best thoughts and inspirations-I have a saying, “Wisdom is like water. It always comes from somewhere.” So if you open yourself up to receiving inspiration and inspiring thoughts, they come. That’s kind of my approach. I just put myself into a states of mind that allow inspiration and wisdom to come through or open myself to come in contact with inspiring people, such as yourself.
Bill Baren: Yes. Thank you. Yes, it’s really nice to be able to hear that how much of your own personal spiritual practice goes into your business.
Chris Berkner: Right. Just kind of quieting the mind and listening, I think, is–one idea can really change your entire business, can change your entire life. So opening up and being receptive to the creative thoughts that arise, I’d say, it’s pretty valuable.
Bill Baren: Yeah, absolutely. So other than your intuition and using your intuition on a business level, what else does it mean to be innovative in the venture capital business? What does innovation mean in your field?
Chris Berkner: It’s an interesting question. I’m not sure–I don’t how innovative the VC model really is in a certain way. I think that it’s been developed over–mostly, it’s kind of starting in its current form probably in the ‘80s with the microcomputer revolution, and I don’t know if it’s really changed that much. Certain things have changed, you know, like valuations and deal terms fluctuate with the market to become more or less favorable towards the company or towards the investors. I would say the types of firms that are coming up and how they are coming into existence is probably changing. A small boutique firm like One Earth Capital didn’t exist in the clean tech space or at least, in the exact form that we exist more than a couple of years ago. You also see things like companies mixing ventured debt with venture capital. Or you see a lot of hedge funds, we see multi-billion dollar hedge funds that are now opening up VC branches. You see companies like Merrill-Lynch making venture-type investments now and I think part of that is because these bigger players want to get in to clean tech. There aren’t that many big public clean tech companies for them to invest in, so they have to start looking at the earlier stages. I think there’s room for innovation in venture capital. I have some ideas about how the whole model could drastically shift but they’re still kind of gestating within my own mind so I won’t share too many details on that.
Bill Baren: Maybe in six months or so, we can have another interview.
Chris Berkner: We’ll see, yes.
Bill Baren: In which, you give us your plan on how to take over the clean tech world by your innovative ideas. So I’ve just one more question for you. There’s going to be a lot of entrepreneurs that are listening to this podcast. So what advice may you have to innovative-forward thinking green entrepreneurs?
Chris Berkner: I’ve a lot of advice for entrepreneurs. Actually, I’m writing the “For entrepreneurs section” of our website right now which is under development. So let’s see, I’ll just try to whittle it down to a few key items.
Number one, know your market and your competition and make sure that the technology you’re developing is truly going to address that market in a way that others are not and that you can defend your technology in terms of protecting it from being copied.
Number two, not all venture capitalists are bad guys, so try to have a positive attitude and check references on your potential investors because they can really be great allies. And part of this is–subnumber two here is my little spiel on three types of entrepreneurs. I would say, there are three types of entrepreneurs. Number one, entrepreneurs who know how to play the venture capital game and they’re ready to play. Those usually people who have been through it before. Number two type of an entrepreneur is someone who doesn’t know how to play the venture capital game but they’re ready and willing to learn. And then there’s number three, which is entrepreneurs who don’t know how to play the venture capital game and they’re not sure they’re ready to learn. We feel a lot of great technologies led by companies, they sort of they think they’re looking for venture capital but then they really don’t know how it works. They tend to be defensive and suspicious and kind of self-sabotaging in those ways.
So I would say, if you’re going to let for venture capital, get a really good venture lawyer. There are a number of big firms and there are also a number of smaller firms out there. Ask around and interview a couple of lawyers and find one. Work with that person. A good venture lawyer should be able to make good connections for you and also give you a lot of extremely essential advice if you go through the process of making money.
What other advice I have? Do something that you’re completely passionate about and be willing to because you’re going to have to devote a huge amount of time and energy over many years to make it successful. We heard this piece with them recently–from a CEO, I believe it was, who said, “To get anything really difficult done usually takes at least five phone calls, most people stop at three.” You’ve got to have the passion for what you’re doing in order to get from three phone calls to five phone calls on every little thing that is difficult to do.
Bill Baren: Perfect. Thank you, Chris. I really love to end on that note. Everybody, make the five phone calls.
Chris Berkner: My pleasure.
Bill Baren: All right. Take care. Bye.
June 7th, 2008 at 2:42 pm
Bill,
This is an excellent and informative interview. Chris Berkner and his partner Joe Hudson have done a very thorough job of figuring out their focus and goals, and then following through on them. Bravo! In the interview, very well led by you, Chris answers carefully and fully, again deplaying a thorough understanding of his field, his opportunities and challenges, as well as how financing works in the VC world, something I know a lot about from my extensive experience over the years with VC’s.
I’d add that the Sun is going through a period of major cyclical sun bursts which no matter what we do here on Earth is causing at least some of the global warming. This global warming, in turn, raises the ocean temporatures releasing huge quantities of CO2 into the atmosphere. So even if One Earth Capital’s efforts and that of others totally stopped the human production and release of CO2, the warming is likely to continue until the sun once again settles down. So in addition to their current eforts, I would love to see Chris, Joe and company also apply their considerable smarts and efforts to steps that will assist humankind as this warming occurs, whatever its cause. If we are really in a period of long term significant global warming, of which some healthy skeptacism is appropriate, we’re going to get at least some of it no matter what we do. So what can we do to live safely and comfortably with it, maybe even take advantage of it? Now, there is a challenge!
June 8th, 2008 at 6:08 pm
Thanks for your thoughtful comment, Peter. Whether we are experiencing global warming or not, the global issues of lack of water, energy and food are still ours to solve. It’s vital that we create a sustainable world and sustainable business is major piece of that.
Thank you for the conversation.
~Bill
July 16th, 2009 at 8:11 pm
Bill,
The global issues of water, energy and food are certainly real. I’d add health to that key list (think of malaria with 1-2 million deaths every year). And while the progress of mankind over the eons on these challenges is impressive, much, as you say, remains. Most important work.