Ending years of debates over environmental sustainability, the United States officially declared a climate crisis earlier this year, deeming climate considerations an “essential element” of foreign policy and national security. After recommitting the U.S. to the Paris Agreement, President Joseph R. Biden announced an aggressive new goal for reducing U.S. greenhouse gas emissions and pushed world leaders to collectively “step up” their fight against climate change.
At the same time, consumers are increasingly looking to do business with brands that align with their growing environmental values, rather than ignoring the climate consequences of their consumption. Even without regulation as a stick, consumer demand is now serving as a carrot to increase sustainability’s impact on public companies’ agendas.
Startups have already followed suit. Investors today view sustainability as an important pillar of any business model and are looking for entrepreneurs who “get it” from the beginning to build and scale next-generation companies. Startups interested in thriving cannot treat sustainability as an afterthought and should be prepared to enter the public eye with a plan for sustainable growth.
Today, companies of all sizes are being held to a higher standard by consumers, employees, potential partners and the media.
So what exactly do founders need to put in place to demonstrate that they’re on the right track when it comes to sustainability? Here are five attributes that investors are looking for.
1. A truly customer-centric feedback loop
It’s fairly easy for any company to claim that it understands customers’ wants and needs, but it’s challenging to have the tech stack in place to prove a company actually listens to customer feedback and meets those expectations.
Investors now expect startups to have both platforms and solutions — social listening channels, relationship management tools, surveying programs and review forums — that allow them to hear and act on the needs of their customers. Without the proper communications tools and actual people using them, your eco-friendly efforts will likely appear to be merely lip service.
Take the example of TemperPack, which manufactures recyclable insulated packaging solutions for shipments of cold, perishable foods and pharmaceuticals. The direct relationship between a packager like TemperPack and the end consumer is often invisible. But as we were looking into investing in the company, some of its life sciences customers told us about comments they had received from end users — people who were receiving medicine twice per day. Another supplier’s packaging required them to visit a recycler for disposal, a real-world pain point that was causing them to consider switching to a different medication.
Revolution Growth decided to add TemperPack as a portfolio company after directly seeing its customer feedback loop in action: End-user requests informed product development, proving both a market need and customer demand on the sustainability front. This firsthand example demonstrates how an investor, a packaging maker, a life sciences company and an end user are now interconnected in one relationship while underscoring how end-user feedback can connect the dots for sustainable product development.
2. Public commitment to sustainability goals
Over the past several years, we have seen millennials and Gen Z consumers demand transparency in sustainability efforts. As these generations grow in purchasing power, investors will look for startups that make their commitments to eco-friendly goals as transparent as possible to satisfy shrewd consumer needs.
For many VCs, making public commitments to sustainability goals is a sign that your startup is working toward becoming a next-generation company. Investors will look for goals that are thoughtful, with a clear understanding of where your company will have agency and influence, and that are S.M.A.R.T (Specific, Measurable, Achievable, Realistic and Timely). They will also expect regular reports on progress.
Although a company’s management establishes these goals, its board should play a behind-the-scenes role in driving the goals forward, keeping leadership on track and setting the playing field so executives understand that they’re being evaluated on criteria transcending positive EBIDTA.
Taking these steps will ensure goals are responsible and ambitious while also holding the company accountable to consumers and stakeholders to see the initiatives through to completion.
3. Purpose-driven culture
Even the best-laid sustainability goals will go unmet without a strong culture designed to guarantee leadership and employee alignment. Sustainability must be ingrained in a startup’s culture — from the top down and bottom up — and there’s a lot at stake if it’s not.
Another Revolution Growth portfolio company, the global fintech-revolutionizing startup Tala, demonstrates how young companies can imbue their cultures with purpose-driven values. While Tala’s mission is to provide credit to the unbanked, the company believes that the consumer’s best interests should always come first. During 2019’s holiday season, Tala contrasted with businesses fueling consumption by instead urging customers in Kenya to not take out loans, protecting them from predatory unregulated lenders amid a lack of functioning credit bureaus and loan-stacking databases. This forward-looking approach ultimately safeguarded Tala’s customers and its vibrant digital lending industry.
Beyond determining what they stand for, many of our portfolio companies face challenges securing talent. People have choices about where they want to work, and those with intrinsic motivations — such as concerns about the environment — will feel uncomfortable if their employers do not share their values. Regulatory risks and customer attrition pale in comparison to the human cost of losing star performers who seek other work cultures that better align with their values.
A clear values system should embed sustainability into the decision-making process, make obvious imperatives and empower employees to follow through.
Companies aren’t only judged by their own initiatives — they’re also judged by their partners. As startups build new relationships or expand to work with new suppliers, investors will be keen to know that these outside parties align with their stated sustainability philosophies.
Before becoming publicly involved with another company, a startup should gauge each new supplier’s reputation, including insights into their employment practices. Take leading Mediterranean fast-casual restaurant Cava or healthy-inspired salad-centric chain Sweetgreen, both Revolution Growth portfolio companies; neither will source proteins from farms with inhumane policies. If companies are not aware of these factors, their customers will eventually let them know, and likely hold them accountable for the oversight.
Think of it this way: If a diagram of your partnerships and supplier relationships was printed on the front page of The New York Times, would you be comfortable with what it shows the world? Today, companies of all sizes are being held to a higher standard by consumers, employees, potential partners and the media. It’s no longer possible to fly under the radar with relationships that are antithetical to a company’s sustainability goals. So take a hard look at your supplier and partner ecosystem, and make clear that you are bringing your green vision to life through every extension of your business.
5. Financial realism
Financial realism acknowledges that a company can want to do good, but unless they have the economics, they won’t survive to make an impact. For most startups, beginning with financial realism as a mindset and incrementalism as an approach will be key to success, enabling all businesses to contribute to a more resilient planet. For startups that prioritize environmentally friendly business practices alongside a product or service, this strategy can prevent goodness from becoming the enemy of greatness. Founders in this position can commit to a stage-by-stage sustainability plan, rather than expecting an overnight transformation. Investors understand the delicate balance between striving to meet green goals and keeping the lights on.
Entrepreneurs looking to build a business that not only adopts eco-friendly practices but also has sustainability at its heart may have to consider starting in a niche industry or market that is less price-sensitive and ready for a solution today. Once that solution is firmly established, the business can build upon what they’ve created, rather than going big with something that doesn’t scale — and failing fast. Without an initial set of customers that value and love what you’re doing, you won’t get to the bigger play.
As the public and private sectors continue to address the climate crisis, sustainability will increasingly become a mandate rather than an option, and funding will increasingly flow to startups that have addressed potential environmental concerns. Unfortunately, pressure for companies to meet sustainability demands has led to “greenwashing” — the deceptive use of green marketing to persuade consumers that a company’s products, aims and policies are environmentally friendly.
Greenwashing has forced investors to look beyond mere words for action. As we move toward a more sustainable future, startups pursuing VC funding will need to prove to investors that sustainability is a priority across their entire organizations, aligning their outreach, public commitments and cultures with accountability and concrete examples of sustainable activities. Even if those examples are just steps toward larger goals, they will show investors and customers that startups are ready today to contribute to a greener and better tomorrow.
Extra Crunch roundup: TC Mobility recaps, Nubank EC-1, farewell to browser cookies
What, exactly, are investors looking for?
Early-stage founders, usually first-timers, often tie themselves in knots as they try to project the qualities they hope investors are seeking. In reality, few entrepreneurs have the acting skills required to convince someone that they’re patient, dedicated or hard-working.
Johan Brenner, general partner at Creandum, was an early backer of Klarna, Spotify and several other European startups. Over the last two decades, he’s identified five key traits shared by people who create billion-dollar companies.
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“A true unicorn founder doesn’t need to have all of those capabilities on Day One,” says Brenner, “but they should already be thinking big while executing small and demonstrating that they understand how to scale a company.”
Drawing from observations gleaned from working with founders like Spotify’s Daniel Ek, Sebastian Siemiatkowski from Klarna, and iZettle’s Jacob de Geer and Magnus Nilsson, Brenner explains where “VC FOMO” comes from and how it drives dealmaking.
We’re running a series of posts that recap conversations from last week’s virtual TC Mobility conference, including an interview with Refraction AI’s Matthew Johnson, a look at how autonomous delivery startups are navigating the regulatory and competitive landscape, and much more. There are many more recaps to come; click here to find them all.
Thanks very much for reading Extra Crunch!
Senior Editor, TechCrunch
How contrarian hires and a pitch deck started Nubank’s $30 billion fintech empire
Founded in 2013 and based in São Paulo, Brazil, Nubank serves more than 34 million customers, making it Latin America’s largest neobank.
Reporter Marcella McCarthy spoke to CEO David Velez to learn about his efforts to connect with consumers and overcome entrenched opposition from established players who were friendly with regulators.
In the first of a series of stories for Nubank’s EC-1, she interviewed Velez about his early fundraising efforts. For a balanced perspective, she also spoke to early Nubank investors at Sequoia and Kaszek Ventures, Latin America’s largest venture fund, to find out why they funded the startup while it was still pre-product.
“There are people you come across in life that within the first hour of meeting with them, you know you want to work with them,” said Doug Leone, a global managing partner at Sequoia who’d recruited Velez after he graduated from grad school at Stanford.
Marcella also interviewed members of Nubank’s founding team to better understand why they decided to take a chance on a startup that faced such long odds of success.
“I left banking to make a fifth of my salary, and back then, about $5,000 in equity,” said Vitor Olivier, Nubank’s VP of operations and platforms.
“Financially, it didn’t really make sense, so I really had to believe that it was really going to work, and that it would be big.”
Despite flat growth, ride-hailing colossus Didi’s US IPO could reach $70B
In his last dispatch before a week’s vacation, Alex Wilhelm waded through the numbers in Didi’s SEC filing. The big takeaways?
“While Didi managed an impressive GTV recovery in China, its aggregate numbers are flatter, and recent quarterly trends are not incredibly attractive,” he writes.
However, “Didi is not as unprofitable as we might have anticipated. That’s a nice surprise. But the company’s regular business has never made money, and it’s losing more lately than historically, which is also pretty rough.”
What’s driving the rise of robotaxis in China with AutoX, Momenta and WeRide
AutoX, Momenta and WeRide took the stage at TC Sessions: Mobility 2021 to discuss the state of robotaxi startups in China and their relationships with local governments in the country.
They also talked about overseas expansion — a common trajectory for China’s top autonomous vehicle startups — and shed light on the challenges and opportunities for foreign AV companies eyeing the massive Chinese market.
The air taxi market prepares to take flight
“As in any disruptive industry, the forecast may be cloudier than the rosy picture painted by passionate founders and investors,” Aria Alamalhodaei writes. “A quick peek at comments and posts on LinkedIn reveals squabbles among industry insiders and analysts about when this emerging technology will truly take off and which companies will come out ahead.”
But while some electric vertical take-off and landing (eVTOL) companies have no revenue yet to speak of — and may not for the foreseeable future — valuations are skyrocketing.
“Electric air mobility is gaining elevation,” she writes. “But there’s going to be some turbulence ahead.”
The demise of browser cookies could create a Golden Age of digital marketing
Though some may say the doomsday clock is ticking toward catastrophe for digital marketing, Apple’s iOS 14.5 update, which does away with automatic opt-ins for data collection, and Google’s plan to phase out third-party cookies do not signal a death knell for digital advertisers.
“With a few changes to short-term strategy — and a longer-term plan that takes into account the fact that people are awakening to the value of their online data — advertisers can form a new type of relationship with consumers,” Permission.io CTO Hunter Jensen writes in a guest column. “It can be built upon trust and open exchange of value.”
If offered the right incentives, Jensen predicts, “consumers will happily consent to data collection because advertisers will be offering them something they value in return.”
How autonomous delivery startups are navigating policy, partnerships and post-pandemic operations
We kicked off this year’s TC Sessions: Mobility with a talk featuring three leading players in the field of autonomous delivery. Gatik co-founder and chief engineer Apeksha Kumavat, Nuro head of operations Amy Jones Satrom, and Starship Technologies co-founder and CTO Ahti Heinla joined us to discuss their companies’ unique approaches to the category.
The trio discussed government regulation on autonomous driving, partnerships with big corporations like Walmart and Domino’s, and the ongoing impact the pandemic has had on interest in the space.
Waabi’s Raquel Urtasun explains why it was the right time to launch an AV technology startup
Raquel Urtasun, the former chief scientist at Uber ATG, is the founder and CEO of Waabi, an autonomous vehicle startup that came out of stealth mode last week. The Toronto-based company, which will focus on trucking, raised an impressive $83.5 million in a Series A round led by Khosla Ventures.
Urtasun joined Mobility 2021 to talk about her new venture, the challenges facing the self-driving vehicle industry and how her approach to AI can be used to advance the commercialization of AVs.
How to identify unicorn founders when they’re still early-stage
As an early-stage VC, you spend time with hundreds of fantastic startups, trying to identify potential winners by thinking about market size, business model and competition. Nevertheless, deep down you know that in the long run, it all comes down to the team and the founder(s).
When we look at the most successful companies in our portfolio, their amazing performance is in large part thanks to the founders. However, even after 20 years in the industry, I have to admit that analyzing the team is still the most challenging part of the job. How do you evaluate a young first-time entrepreneur of an early-stage company with little traction?
The best founders are humble and well aware of their weaknesses and limitations as well as the potential challenges for their startup.
At Creandum, in the past 18 years, we have been fortunate to work with some of Europe’s most successful startup founders such as Daniel Ek from Spotify, Sebastian Siemiatkowski from Klarna, Johannes Schildt from Kry, Jacob de Geer and Magnus Nilsson from iZettle, Emil Eifrem from Neo4J, Christian Hecker from Trade Republic and many more.
After a while, we realized that these incredible entrepreneurs all share some fundamental characteristics. They all have lots of energy, work hard, show patience, perseverance and resilience. But on top of that, all these unicorn founders share five key traits that, as an investor, you should look for when you back them at an early stage.
They know what they don’t know
Many people expect a typical startup founder to be very confident and have a strong sales mentality. While they should definitely live up to those expectations, the best founders are also humble and well aware of their weaknesses and limitations as well as the potential challenges for their startup.
They keep wanting to learn, improve and grow the business beyond what average people have the energy and drive to manage.
Solar concentration startup Heliogen basks in $108M of new funding
Sunlight is a great source of energy, but it rarely gets hot enough to fry an egg, let alone melt steel. Heliogen aims to change that with its high-tech concentrated solar technique, and has raised more than a hundred million dollars to test its 1,000-degree solar furnace to a few game mines and refineries.
We covered Heliogen when it first made its debut in 2019, and the details in that article still get at the core of the company’s tech. Computer vision techniques are used to carefully control a large set of mirrors, which reflect and concentrate the sun’s light to the extent that it can reach in excess of 1,000 degrees Fahrenheit, almost twice what previous solar concentrators could do. “It’s like a death ray,” founder Bill Gross explained then.
That lets the system replace fossil fuels and other legacy systems in many applications where such temperatures are required, for example mining and smelting operations. By using a Heliogen concentrator, they could run on sunlight during much of the day and only rely on other sources at night, potentially halving their fuel expenditure and consequently both saving money and stepping toward a greener future.
Both goals hint at why utilities and a major mining and steel-making company are now investors. Heliogen raised a $25M A-2, led by Prime Movers Lab, but soon also pulled together a much larger “bridge extension round” in their terminology of $83M that brought in the miner ArcelorMittal, Edison International, Ocgrow Ventures, A.T. Gekko, and more.
The money will be used both to continue development of the “Sunlight Refinery,” as Heliogen calls it, and deploy some actual on-site installations that would work in real production workflows at scale. “We are constantly making design and cost improvements to increase efficiency and decrease costs,” a representative of the company told me.
One of those pilot sites will be in Boron, CA, where Rio Tinto operates a borates mine and will include Heliogen’s tech as part of its usual on-site processes, according to an MOU signed in March. Another MOU with ArcelorMittal will “evaluate the potential of Heliogen’s products in several of ArcelorMittal’s steel plants.” Facilities are planned in the U.S., MENA, and Asia Pacific areas.
Beyond mining and smelting, the technique could be used to generate hydrogen in a zero-carbon way. That would be a big step towards building a working hydrogen infrastructure for next-generation fuel supply, since current methods make it difficult to do without relying on fossil fuels in the first place. And no doubt there are other industrial processes that could benefit from a free and zero-carbon source of high heat.
“We’re being granted the resources to do more projects that address the most carbon-intensive human activities and work toward our goals of lowering the price and emissions of energy for everyone on the planet,” Gross said in a release announcing the round(s). “We thank all of our investors for enabling us to pursue our mission and offer the world technology that will allow it to achieve a post-carbon economy.”
Europe’s tech leaders define a strategy to create tech giants
A group of 200 startup founders, investors, associations and government members are backing a manifesto and a set of recommendations in order to create the next wave of tech giants in Europe. Today, French President Emmanuel Macron is hosting an event in Paris with some of the members of this group called Scale-Up Europe.
Companies, investors and associations that signed the manifesto include Alan, Axel Springer, Bpifrance, Darktrace, Deutsche Startups, Doctolib, Eurazeo, Flixbus, France Digitale, Glovo, La French Tech, N26, OVHcloud, Shift Technology, Stripe, UiPath and Wise.
“To achieve all that, I’ll follow your ambition — 10 technology companies that are worth €100 billion or more by 2030,” Macron said.
That’s an ambitious goal — that’s why Scale-Up Europe has laid out a roadmap and is issuing a report. While it is backed by both private actors and public institutions, it could be considered as a sort of lobbying effort for the European Commission and European governments.
There are a handful of key topics in those recommendations. And it starts with funding. In particular, the group thinks Europe is still lagging behind when it comes to late-stage investments. The biggest VC funds aren’t as big as the biggest VC funds in the U.S. or in China.
The French government has been working on a way to foster late-stage funds and investments in public tech companies in France. “On funding, we’ve seen the success of the Tibi initiative at the French level. We think we should follow that model at the European level,” a source close to Macron told me.
It means that Europe should consider using public funding as a multiplier effect for VC funds. The European Investment Fund is already pouring a lot of money in VC funds. But Scale-Up Europe recommends associating private funds of funds, sharing risk and pooling public investment banks for increased collaboration.
The second topic is foreign talent. Some countries already have a tech worker visa. The group thinks it should be standardized across the European Union with some level of portability for social rights.
A couple of years ago, an open letter called “Not Optional” also highlighted some discrepancies with stock option schemes. Today’s report states once again that some governments should adopt more favorable rules with stock options.
The third topic revolves around Deep Tech startups. According to the report, Europe isn’t doing enough to foster more Deep Tech startups and investors. Recommendations include standardizing patent transfer frameworks. Those schemes are important if you want to turn a research project into a company. It also says that the European Innovation Council could also take on a larger role in defining a Deep Tech roadmap.
Scale-Up Europe then highlights some recommendations to improve relationships between big corporations and startups. These are mostly tax breaks, R&D tax benefits and other fiscal incentives. (I’m personally not convinced there will be more European tech giants if we incentivize acquisitions with tax breaks.)
Finally, the group of investors, founders and government members behind Scale-Up Europe think there should be a European tech mission that works a bit like La French Tech in France. This tech mission could clear regulatory hurdles, promote startups and more.
Overall, those recommendations are mostly focused on making it easier to create — and grow — a startup in Europe. Investors as well as startup employees who hold stock options will be quite pleased to see that it’ll be easier to make money quickly. It’ll be interesting to see whether the European Commission reuses some of these recommendations.
To be fair, those are actionable recommendations. And yet, building a tech giant is a complicated task. Tech giants tend to control a large chunk of their tech stack, including in areas such as cloud hosting, payments, analytics, advertising and artificial intelligence.
Many European startups are currently built on APIs, frameworks and platforms that are built in the U.S. or in China. Scale-Up Europe misses the point on this front. Scaling European startups isn’t a gold rush. It’s a long process that requires continuous investments that start from the bottom of the tech stack and moves upward.
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