Venture capital funding is an essential ingredient for creating an innovation ecosystem, funding research and startups that are the seeds for new industries. In this fireside chat, a regional innovation leader and an investor spoke about how venture capitalists can support innovation economies, even beyond monetary investment.
Tiger 21 Founder and CEO Mr. Michael Sonnenfeldt leads an investor network of 1,600 members managing $200 billion in personal wealth, giving him a unique view on how high-net-worth individuals are investing their assets. Private equity had surged to become the largest category of their investments in the past fifteen years — up to 28 percent from 10 percent — shifting more money into startups. But for him personally, his focus has remained on climate investment, and the integration of philanthropy, finance, and politics to build a more climate-resilient future.
“The climate does not care about politics or finances."
Mr. Michael Sonnenfeldt
Founder and Chairman
Tiger 21
When asked by Colorado-Wyoming Climate Resilience Engine CEO Mr. Mike Freeman how he had begun to do that, Mr. Sonnenfeldt pointed to Muus Climate Partners, an investment firm he leads that puts money towards thirty-five different sectors of climate interest, including industrial transport, agriculture, and power production. The companies he invests in are at the end of the seed stage with a viable product and potential customers, but without production at scale.
After running this venture for ten years, Mr. Sonnenfeldt said the changes coming out of Washington had flipped the whole industry upside down, making it more difficult to predict how the market will act. This is especially problematic for forming new companies and getting startups in the early stages off the ground. Early-stage companies do not have cashflow, and are reliant on outside investment, with venture capital forming the “tip of the spear.” Venture capital investors apply a discount based on how long it will take a company to become profitable, traditionally sitting at 30 percent. But in the past six months, that discount has grown to 40 percent, severely limiting the ability of new companies to fundraise and putting their existence in jeopardy. Mr. Sonnenfeldt warned that, if we are not in a distressed environment already, we are near one.
Turning to climate resilience as an industry, Mr. Sonnenfeldt separated the concept into two ideas: mitigation and adaptation. Mitigation is stopping climate effects at a global level, like through the reduction of CO₂ emissions, while adaptation focuses on combating local impacts like wildfires or water availability. He suggested that the Mountain West focus on the latter, given the close cooperation with the local governments using adaptation technologies and the more concentrated nature of the benefits.
Asked for his advice for the Mountain West, Mr. Sonnenfeldt reiterated the theme that cooperation was a huge advantage, especially with governments. He argued they had the power to lead investment, even with comparatively modest investment of their own. He gave the example of how airline miles were not a good deal for the average consumer, but the appearance of a good deal created intense brand loyalty, itself incredibly valuable. Mr. Sonnenfeldt said governments, through small investments, could make new projects seem like a bargain to investors in the same way, even if the private investors wind up providing most of the funding, thereby building up the “brand” of a project independent of the current financial outlook.
Mr. Freeman, zooming in on funding for organizations like the NSF Engines, noted the engines and others like them are engaging more deeply with corporations and philanthropic organizations to sustain their missions over decades. How does the Mountain West attract interest from investors? Mr. Sonnenfeld suggested two ways to attract attention: science and law. With scientific denialism and misinformation rampant today, objective, empirical evidence about climate-related matters can have huge value; he invests in one MIT program that visualizes climate impacts as one example. In law, forward-looking policies can attract attention; for example, in California, utility companies are facing lawsuits holding them accountable for wildfires sparked by powerlines. These sorts of programs and efforts can attract private and philanthropic dollars towards solutions.
To conclude, Mr. Sonnenfeldt pointed out how the money philanthropists offer to universities is often not the full extent of what they can provide. For one example, he used his connections to get climate models from the MIT Climate Policy Center in front of more than 300 senators, congressmen, and governors. For another, his donation to the Ben-Gurion University climate school in Israel is anticipated to spur more investments behind him, multiplying the value of the original gift.
