Venture Capitol

The climate crisis is desperate to be solved. America’s startup ecosystem is at the frontline of the solution. In this episode, we explore how startups are advancing breakthroughs in climate technology.

Show Notes

The climate crisis is desperate to be solved. America’s startup ecosystem is at the frontline of the solution. In this episode, we explore how startups are advancing breakthroughs in climate technology, making cities greener, and we establish where policy stands on VC investment and climate solutions.

NVCA’s Manager of Government Affairs Jonas Murphy gives an update on past, current, and future federal policy that addresses investment in climate startups and how VCs can advocate for the right policy to solve the climate crisis. 

Founder and CEO of BlocPower Donnel Baird grew up in a poor Brooklyn neighborhood where heating low-income housing was a challenge. His childhood experiences helped spawn the idea for BlocPower. Donnel shares how BlocPower is now working to decarbonize buildings, make cities greener, and employ and train people from vulnerable communities to work in climate tech. 

Co-founder of Accel Arthur Patterson won the 2022 NVCA Lifetime Achievement Award. He has mentored countless investors and shares insight gained from decades of VC experience. 

Congressman Ro Khanna (D-CA 17th District) discusses how to make the tech industry work across places in rural America, why VC investments need to be decentralized and dispersed, and how he addresses these in his new book, Dignity in a Digital Age: Making Tech Work for All of Us.

To register for our events, or to learn more about the National Venture Capital Association (NVCA) visit our website.

Creators & Guests

Host
Bobby Franklin
Writer
Cassidy Butler
Producer
Laura Krebs
Producer
Sabrina Fang

What is Venture Capitol?

Welcome to the Venture Capitol podcast, the place where politicians can impact the startup industry nationwide. Join NVCA President & CEO Bobby Franklin for a unique podcast that looks at public policy through the eyes of America’s venture capitalists — the people who are investing in the high-growth companies of tomorrow. This show brings together VCs, policymakers, and policy influencers to discuss and debate issues that affect our nation’s economic future.

Bobby Franklin (00:06):
Hello everyone, I'm Bobby Franklin and welcome back to Venture Capital. A podcast brought to you by NVCA, where there's an O in capitol as in Capitol Hill, where NVCA advocates for policies that support the US startup ecosystem.
This episode focuses on climate and how the nation's startup ecosystem is advancing breakthrough climate technology to help make our planet healthier for generations to come. We are going to cover the climate issue from the policy perspective, hear from an entrepreneur who is making a real difference in making cities greener and talk about the VC investment impact on climate solutions. We will also hear from Congressman Ro Khanna later in the show on his new book and his work to support American entrepreneurs and the VCs that back them.
I'm joined now with one of our very own. NVCA's Jonas Murphy. Jonas is our manager of government affairs and has a bunch of responsibility for many policy issues. But the one we want to focus on today is about climate. First of all, Jonas, welcome to the podcast.

Jonas Murphy (01:10):
Thank you, Bobby. It's great to be here and look forward to the discussion.

Bobby Franklin (01:14):
Jonas, when I started at NVC back in 2013, a lot of people told me, "Look, there's no investing in climate. It has gone to zero." But I think the data looks different in 2022. What can you tell us about the data on investment in climate?

Jonas Murphy (01:32):
That's right, 2020 was actually a record year for climate investment. We reached a record of $12.7 billion invested into US based climate tech startups, and 2021 was actually even more than double that record to $27 billion dollars invested into US based climate tech startups. So it's a significant increase in capital invested over the last couple years and given the importance of speed in getting the economy to carbon neutral, this wave of young companies is going to play a key role in the nation's efforts to address the climate crisis, so we're optimistic.

Bobby Franklin (02:01):
And we did what we normally do at NVCA, is when there is an area of interest or investment, we tend to put together groups. Talk a little bit about our climate and sustainability working group.

Jonas Murphy (02:13):
We formed this working group back in 2020, really to organize the venture ecosystem around the various climate programs that are coming online from both the bipartisan infrastructure law, and potentially the Build Back Better Act, which is still very much to be determined. We have about 40 members of the working group. They invest across really all climate verticals. From carbon capture, energy storage, EV charging, hydrogen. It's really a broad group that brings a really diverse range of perspectives to the conversation and helps us identify critical issues that we can then advocate for to policy makers.
It's a really effective forum to both hear what's on the minds of climate investors and their portfolio companies that are doing the innovation and really pushing the boundaries of what's achievable in these verticals. It's also a way for us to let them know what's going on in the policy landscape. There's been a lot of action around these policy proposals in recent months and so keeping them updated and also hearing what they're concerned about is the main purpose of the working group.

Bobby Franklin (03:19):
Well, it seems like you can't talk about energy without talking about energy tax credits. I think a lot of people are familiar with those. Talk a little bit about our work around energy tax credits.

Jonas Murphy (03:30):
This is definitely a key area of concern for us, and we've been very supportive of extending and expanding the climate tax credits. We're also supportive of essentially it's refundability mechanism for the climate tax credits. What this basically means is startups that are pre profit, they don't have profits that the credits can offset, they can take full advantage of the tax credits in the year that they're generated. Essentially this is a way to generate liquidity for these startups, help them to gain access to funds that they can then put towards research and development, deploying projects, hiring people. This was included in the Build Back Better Act and it's potentially one of the most critical provisions to help broad range of climate tech startups. We're optimistic about that. As I mentioned, the Build Back Better Act, there's certainly some uncertainty around that, but if a deal does come together, we're optimistic that the climate tax credits and specifically the direct pay mechanism can make it into that package.
We're also focused on the 45Q tax credit. This is essentially for carbon capture. Essentially right now, the minimum scale requirements that require companies to capture at least 25,000 tons of carbon per year in order to be eligible for the credit, really all but the largest companies can't qualify for that credit as it's currently constituted.

Bobby Franklin (04:52):
Once again, it's Washington that is making decisions, as they have in the past, that only a handful of really big incumbent companies then can take advantage of. And we're in there trying to say, "No, wait a minute, there are other companies that can do a lot of good. You just have to understand they may not be at the same scale," right?

Jonas Murphy (05:10):
That's right, that's exactly right. That applies for both the direct pay mechanism and the 45Q credit. Essentially, the goal of our advocacy around these issues is to help startups achieve parody with incumbent companies and be able to scale up and ultimately challenge the incumbents. We put together a memo that we provided to policy makers on the 45Q credit, detailing our proposal here. We're optimistic that this as well, if a deal does come together around the Build Back Better Act, that we're optimistic that this can make it in addition to direct pay mechanism.

Bobby Franklin (05:40):
Now, I come from Arkansas, we're a predominantly agriculture state. Aren't there some provisions around agriculture?

Jonas Murphy (05:47):
There are. One provision that we're particularly excited about, and it's not included in the Build Back Better Act, but it's something that we've been advocating for, it's called the Growing Climate Solutions Act. Essentially, this would help farmers, help the agriculture sector to gain access to carbon credits. It essentially establishes some new standards around the carbon credit markets, helps solve for a lot of the technical issues that currently exist in carbon credits and would go a long way towards helping farmers and agriculture, the industry writ large to gain access to carbon credits.

Bobby Franklin (06:20):
Jonas, you've just said several things about Build Back Better and I want to put this in context for everybody. The Build Back Better, as it was making its way through the Congressional process last year and then it got put on hold before the holidays, and the question is, does it get on life support and does it make it again? There are tons of things in there. There are tax provisions we hate, and we've been lobbying against it. There are things we like, like the several items you mentioned around climate. Some of them are in there, some of them are not in there.
I think the last I heard, and maybe you can clarify this, but the last I heard, Senator Manchin, who most people know is a big player here, he has some ideas about what could potentially go forward. It seems as though some of his ideas are around climate. So the fact that it's still in play and the fact that he's a key player and that he has talked about this, still holds hope that some of the positive things that we like in Build Back Better could potentially happen. Is that correct?

Jonas Murphy (07:26):
Senator Manchin is definitely focused on the climate tax credits. Among all of the provisions that Build Back Better Act, he's focused on the climate tax credits, he's focused on programs to help workers that are in these old traditional fossil fuel industries like coal, like natural gas, transition to the new energy economy that's going to be rolling out over the next several decades. Really, if there is a deal that does come together, we think they're going to be focused around climate. We're hopeful, as I mentioned, hopeful that it includes the direct pay mechanism and the 45Q revisions. But it's still very much up in the air, there's still obviously a lot of concerns around inflation and broader trends that are affecting the prospects for this.

Bobby Franklin (08:10):
That's Build Back Better, but there's already been a bill that has passed, right? The bipartisan infrastructure package happened earlier and they're provisions in there. Can you talk about climate provisions in a bill that has already become law?

Jonas Murphy (08:27):
I think that there's really a lot of exciting provisions in the bipartisan infrastructure law that don't get a ton of attention. We've been closely engaged with the Department of Energy on the implementation of these various programs. The loan programs office has certainly been a key partner for us in this process. We've held several round table discussions with leaders from the Department of Energy around EV charging, hydrogen, carbon captured utilization and sequestration. We're discussing a round table on geothermal potentially. So there's a number of programs here that are really interesting and could potentially help a lot of startups in these verticals to scale up.
For example, with respect to EV charging, there's a provision that essentially is going to create 500,000 EV charging stations along the federal highway system, which will really help to increase adoption of electric vehicles. Within carbon capture, there's a number of programs to support research and demonstration programs. There's essentially provision that creates these direct air capture hubs, which are these centralized locations to conduct demonstration projects with respect to direct air capture.
That's really the goal, I think of a lot of these programs. To help startups scale up and ultimately cross the bridge to bankability, so to speak, to bridge the gap between an early stage startup, that's receiving venture funding and doing these research and development early stage activities, and later stage startup, that's actively deploying these technologies and requires a lot of capital to do so. These programs are really intended to help bridge that gap.

Bobby Franklin (09:59):
And that's already become law and the person at DOE that you reference is Jigar Shah, who's head of DOE's loan programs office. Well, that bill's happened. What about our comments and positioning around hydrogen?

Jonas Murphy (10:15):
Yeah, this is a really interesting area as well. As I mentioned, we hosted a round table on hydrogen programs. It was actually our first round table back in January, it was a great discussion. We had a number of portfolio companies' CEOs join, as well as staff from DOE's hydrogen fuel cell technologies office. Coming out of this, there was a DOE issue to request for information, which is essentially a part of the regulatory process where companies can provide formal written comments to encourage effective implementation of various programs. In this case, it was around clean hydrogen manufacturing, recycling and electrolysis programs.
NVCA, we drafted a response to this RFI, representing a broader industry perspective, representing the hydrogen startups that participated in that round table, as well as other working group members. Essentially, we built on the comments, the feedback that was provided during the round table to ensure that startups have access to these programs and they're not inadvertently left out of the process. Oftentimes during the implementation phase is where startups can inadvertently be excluded from accessing the funds based on a small provision, some language that doesn't directly intend to include startups, but can do so inadvertently. So we're very focused on making sure that startups do have access and can take full advantage of these programs.

Bobby Franklin (11:32):
Jonas, thanks so much for walking through all those individual pieces. I guess, stepping up at maybe a 30,000 foot level, how do you think about the venture industry and the entrepreneurs as part of this climate debate, as we go about advocating for the right policies as you've laid out?

Jonas Murphy (11:52):
What we're really trying to do is to help the startup ecosystem gain access to these key programs and really emphasize that a lot of the cutting edge innovation and the technologies that are going to be necessary for solving the climate crisis are coming out of the startup ecosystem. It's not really the incumbent companies that are pushing the boundaries and coming up with these new technologies that are having an out sized impact. So it's really important that startups aren't left out of the process and can access these programs. There's certainly no silver bullet solution. It's going to require all the above approach. We're going to need carbon capture, EV charging. As I mentioned, energy storage, hydrogen, all of these things are going to be a key part of helping the United States meet our emissions reduction goals. Ultimately, we have a target for our economy to be carbon neutral by 2050.

Bobby Franklin (12:39):
Well, it's a good thing that the entrepreneurs and their investors have you here in Washington, looking after their best interest. Jonas Murphy, manager of government affairs for NVCA. Thank you for joining us today on Venture Capital.

Jonas Murphy (12:51):
Thanks, Bobby. Really enjoyed the discussion and appreciate it. Thank you.

Bobby Franklin (12:59):
My next guest is the founder and CEO of Block Power, a Brooklyn based climate technology company, rapidly turning American cities greener. Please welcome Donnel Baird. Thanks for being on the show, Donnel.

Donnel Baird (13:11):
Thanks for having me, Bobby. I'm super excited to be here.

Bobby Franklin (13:14):
Well, Donnel is here partly to tell us about his company, but also so we can bring our listeners a little information about one of our award winners. Donnel and Block Power have won the NVCA 2022 Startup Innovator Award. Tell our listeners what does Block Power do?

Donnel Baird (13:35):
Well, we're delighted on behalf of me and my team at Block Power, we're just so excited about this award and about joining the community in a new and different way. Block Power turns buildings into Teslas. What do we mean by that? Just like Tesla and Rivian and the whole EV industry have taken the fossil fuel combustion engine out of the automobile and replaced it with an all-electric green engine, we can now do the same thing for buildings across America and across the world. Buildings burn oil, they burn gas for heating, for cooking, to produce hot water, to produce air conditioning, and you can remove all of that fossil fuel equipment from buildings and replace it with awesome, cutting edge, all electric equipment. You can use electricity created by solar, wind, hydroelectric power, to power that all electric equipment. So you can make buildings all electric and green and awesome just like Tesla, just like Rivian.

Bobby Franklin (14:38):
I got to ask you, how did you come up with the idea to form a company to do this?

Donnel Baird (14:44):
My best friend in college was a lifelong climate activist. I mean, I think she'd been focused on prioritizing climate change since she was 10 or 11. So in college, she forced me to take a couple classes on the science of climate change and then I believed the science and I became a climate activist and advocate as well. But before that, I'd grown up pretty low income in Brooklyn and then in Atlanta. In Brooklyn, it can get pretty cold during the winters and we did not have a working heating system in our apartment building growing up, neither did any of our neighbors. So when it got really cold in the winter in Brooklyn, we would heat our apartment with the oven. We would turn on the gas oven, we would open up the oven door and open up the windows to release the carbon monoxide and heat our apartment that way.
Fast forward years later, I graduated from college, decided to become a community organizer, moved back to Brooklyn, to Brownsville, which is the poorest neighborhood in New York City. It's where Mike Tyson's from, it's where he grew up. It's one of the worst neighborhoods in America, high rates of gun violence, high rates of HIV, high rates of childhood homelessness and domestic violence, terrible neighborhood. I was a community organizer there, and I remember it was 20 degrees outside and I was walking around looking at the giant 17, 18, 19 story public housing complexes, where thousands of low income families live in these giant apartment complexes. It was 20 degrees outside and all the windows were open. I said, "Ah, I know what that is."
And it occurred to me that in New York City, there's 3000 public housing buildings. If you have thousands and thousands of New York City buildings that are burning oil all winter long to produce a bunch of heat, that's then floating out the window, that it had to be in the order of $300, $400, $500 million, a year of money that was being spent on fossil fuels burned and then wasted because the windows were open. I thought that we could basically train and hire the young families that lived inside those public housing complexes to green those buildings and make them more energy efficient and make them healthier and smarter and upgrade them. That's where Block Power comes from. I mean, it's been 12, 13 years of thinking about this problem and searching for different kinds of solutions to execute on it. And we landed on building out the Block Power platform as a way of scaling this idea up.

Bobby Franklin (17:19):
That's awesome. Donnel, talk to me about the impact on the planet. I mean, you're a climate company, you're talking about taking out fossil fuels, you're talking about electrifying or making a building like a Tesla. Talk to me about the impact there, how it does reduce the fossil fuels or even some of the data that you're looking at and how you're going about this.

Donnel Baird (17:42):
Buildings contribute 30% of carbon emissions from the United States and 20% of all greenhouse gas emissions from the United States. So there is no path to addressing climate change without figuring out how do you green and electrify existing buildings across America? That's the case in America and that's the case across the world. Globally, there's just no path to reaching any of the climate goals that we have, unless you find a way to go building, to building and green those buildings and electrify those buildings and move them off of fossil fuels. As a matter of fact, Bobby, if you had every American family decide to buy an electric vehicle, let's say Jeff Bezos is right, and we get a Rivian for every American or a Tesla or a GM, and what they're doing, they're doing amazing stuff. You get an electric Ford Mustang for every American family, you still aren't going to reduce as much greenhouse gas emissions as if you turned every American home all electric.
The building sector is bigger than the transportation sector in terms of climate impact. We're making a lot of progress in electric vehicles, and everybody's super excited about it. We need to start generating the same impact in the building sector. Now from a venture capital perspective, what we have is a massive, important, lucrative market where there's very little software, there's very little competition, there's a lot of white space. How can you build out a technology platform that's going to help you grab it?
We're really grateful to Jeff Bezos, he gave us a big grant to build out an open source model of 125 million buildings across America, where we're building a digital twin of all the buildings and we're simulating the fossil fuel energy consumption and fossil fuel waste and greenhouse gas emissions of all 125 million buildings. We're assigning a sustainability score and more importantly, we're providing a building decarbonization and electrification plan to 125 million American buildings. Buildings in America are going to be able to search for their address in our search bar, in our app and they'll get a free decarbonization plan that they can print out or have it on their mobile phone and walk it over to their local certified green construction contractor and begin decarbonizing their home. Then we have put together $100 million dollars from Goldman Sachs and Microsoft that will allow us to finance those green construction projects for folks who don't have the cash just laying around.
The last part that I'd say that we're super excited about is this software model now allows us to take what we do in one building and expand it to a whole city full of buildings. If you build a digital model of all the buildings in America, and we do have the hardware and software to electrify one building, well, if you can do one building, you can do 10 buildings. And if you can do 10 buildings, you can do all the buildings in a city. That's exactly what we're doing. We won a contract from Ithaca, New York, where Cornell is located, to decarbonize all 6,000 of their buildings in the city of Ithaca in the next seven, seven and a half years. We're very excited to partner with them to be the first city in the world to electrify all of their buildings.
I want to say every 50th building, we're going to put in the electric vehicle charging station. We're going to green all the buildings and green all the cars in the city and really demonstrate to the world that you can decarbonize a whole city. We're looking for other cities to demonstrate and partner, and actually put together a little bit of a race, Bobby, get people's juices flowing, competitive juices. We're talking to San Jose and Menlo Park and Cambridge, Massachusetts, and Savannah, Georgia, actually, about joining a little bit of a race to see who can decarbonize all their buildings first. Hopefully by the end of the year, we'll have a cohort of 10 to 20 American cities that are racing to fully decarbonize all of their buildings by 2030.

Bobby Franklin (21:55):
This is so impressive and it's no wonder that Time Magazine named Block Power one of the 100 most influential companies. You're working on climate issues, you're working on issues to help bring up neighborhoods that need help. I saw an article said you want to hire a thousand George Floyds. Talk to me about that aspect of pulling people up, giving them a job to do the great work you're doing.

Donnel Baird (22:26):
I was community organizing when I was 22, 23, 24 years old in Brownsville, this terrible neighborhood. The issue that kept coming up was jobs. Even when you talked to people who were dealing drugs in the local drug gangs, they'd say, "Hey, man, if you can get me a job as a janitor and you'll pay me $30,000 dollars, I'll go clean the toilets. I'll stop dealing drugs right now," and I couldn't believe it. I was surprised even though I'd grown up in a community like that. Dealing drugs, it turns out's pretty violent and you actually only get paid minimum wage until you rise up in the ranks. There's this book, Gang Leader For A Day, where an economist actually joins a drug gang for a while and goes through the books and you actually don't make a lot of money. It's super dangerous, it's violent. You're not paid very well. It's not a great job until you move up in the ranks. Then you got rival drug dealers trying to kill you. Plus it's horrible, because you're selling poison to people, so that doesn't feel good.
These guys who were in the neighborhood gangs would come to me and say, "Look, if you can get me a job cleaning toilets, we will quit this drug gang right now and go clean toilets." The question became for me, what does it look like to implement that? Now, it's taken me 10 years to figure out how to do it, but we did win a contract for $177 million from the city of New York to train and hire 1500 young people from New York City's most violent communities. Brownsville's one, the South Bronx is another, Jamaica, Queens is a third, East Harlem is a fourth.
The district attorney and the NYPD has identified people who are likely to be involved in a future incidence of violent crime. It turns out that violent crime is actually a sociological epidemic. If you're involved in one incident of violent crime, you're highly likely to be involved in a future incident of violent crime. You're more likely to buy a gun to protect yourself. You may want vengeance from what you witnessed or survived in the first incident of violent crime. There's a crime wave going across New York and going across America and so the White House and the mayor got together and said, "Hey, what if we hired a thousand of these folks who were likely to be involved in a future incident of violent crime, who do we know that's crazy enough to take on this contract?"
And so they called Block Power and we said, "We'll do it, but we're a climate company. Every single one of those jobs is going to have to be a climate tech job," and they agreed. What we do is we train all of these folks from these vulnerable communities on how to do augmented, reality based construction. How do we electrify buildings, rip out the fossil fuel equipment, which is actually pretty complicated in real life. Sometimes you're in 100 year old brownstone in New York City, you run into asbestos, you run into lead, you run into mold and other hazardous materials. Now, you got to be trained and certified to remove those dangerous materials and demolish and put them in proper places. Anytime you're decommissioning a fossil fuel oil tank or a gas system, that has to be clean and remediated.
Then you got to have an awareness of electrician certifications to run new wires, to upgrade the electrical wiring if you're going to electrify a 50 year old building or a 100 year old building by moving it from fossil fuels to heat pumps and rooftop solar. There's a lot of electrical work, there's a little bit of plumbing work, there's carpentry, there's demolition. We think that the smart way to do construction is using software and mobile in cloud as a way of project managing the project. We want all of our workers to be trained on the cutting edge stuff and so we are training several 100 workers right now and six months from now, we'll have a 1500 person workforce that will be electrifying buildings across New York City. Hopefully we'll be able to work on thousands and thousands of buildings across the city, save people money, make the buildings healthier, greener, and smarter, stabilize the crime rate, but also introduce these young families into jobs that can pay them $50 grand, $70 grand, $100 grand a year, that can give them a full blown career.
We're talking with Goldman Sachs about creating a little working capital pool so that we can invest in some of the folks that want to start up their own green construction business, and really start to build wealth for themselves and their family. We're very proud of this program. It's a giant, ambitious, crazy project, but we are hopeful that not only has it been successful over the last six months, but we're actually in negotiations with several other states around the country that want to duplicate the program in their community. District of Columbia, Bobby, where you are, New Jersey, California, Massachusetts, Georgia, there's other states that we're in conversations with to duplicate this program.

Bobby Franklin (27:27):
That's amazing. Donnel Baird, founder and CEO of Block Power, making cities greener, helping those communities in so many ways. Thank you so much for joining us and congratulations on the NVCA 2022 Startup Innovator Award.

Donnel Baird (27:44):
We are so delighted to be the recipient of this and the venture community has really embraced us. We've learned a ton and we're super excited to be with you.

Bobby Franklin (27:59):
We are also featuring something new in the next few episodes of Venture Capital. Every year, NVCA celebrates the venture industry and honors those who have made significant contributions to foster innovation, advance technology and drive new company formation. Earlier this month, we handed out the 2022 VC awards, and we want you to get to know some of these award winners. My next guest is the 2022 NVCA Lifetime Achievement Award winner, Arthur Patterson. Arthur co-founded Accel in 1983. As an investor, he has helped management teams develop companies into market defining leaders for over four decades. As a leader, he has mentored countless investors to get them on the right track to have successful careers in venture capital. Welcome, Arthur.

Arthur Patterson (28:50):
Thanks a lot for having me, Bobby. This is a real honor. This is I think my first podcast and I have zero Twitter followers. So look forward to the conversation.

Bobby Franklin (29:03):
Arthur, let me ask you a couple questions. First of all, what inspired you to become a venture capitalist to begin with?

Arthur Patterson (29:11):
Bobby, that's a great question and I asked myself that many times because in 1970, venture capital wasn't a business. It certainly wasn't a profession to aspire to. I had a brother who was a lawyer in New York and after leaving the government, he said, "Why don't you get a real job and join Lehman Brothers?" I'd like to say that it was because I looked out and could foresee the two to three orders of magnitude expansion of the business, but that's not really the case. I had an uncle who'd done some deals during the '60s out of an investment firm and he seemed to have a much better and more interesting life than my father, who was a successful executive in a big financial corporation.
So I went with that and to make matters worse, I took a 30% cut in my government salary to join the SBIC that Citicorp had set up. The only reason they'd set it up is because the regulations had changed and the other two SBICs at JP Morgan and Chase both dropped out of the business by '74. The numbers certainly told them to do that, so it actually comes down to just a plain lucky choice.

Bobby Franklin (30:29):
Well, we know you have mentored many people in the VC universe. What is some of the best advice or guidance you have given them?

Arthur Patterson (30:38):
Well, those of you who have children know the challenges of giving advice to children about the most simple of values. The simpler a subject is, the harder it is to give advice. If you have a complicated technical thing, you can give all sorts of help and advice. But venture capital is just so quintessentially simple that it's hard to not sound like you're talking about apple pie when you're talking about venture business. But initiative and luck play an extreme, visible role, obviously in venture capital. So it's very hard to convey to people and get them to commit to what we think of the decisive factor, is that the patience and persistence and professionalism, which over long periods of time really will make a difference and are really hard to do on a consistent basis.
My partners would say if you asked them what were my characteristics that worked for me, I think they might single out common sense. My partner, Jim Swartz, fortunately also was very well endowed with that. We've been extremely fortunate to be in a business of extreme expansion. If you weren't successful, it was probably because you did it to yourself.

Bobby Franklin (31:55):
Arthur, what's your proudest professional accomplishment?

Arthur Patterson (31:58):
Well, Bobby, I could point to building the firm and creating a set of values there that has allowed it to maintain its reputation for quality over generational changes. But my greatest personal satisfaction always came from the contributions that as an early stage investor at least, I've been able to make to quite a few companies over the period. I may have had more than my share of restarts than most people, maybe from too many at bats. But when companies get into difficulties and given the human conditions, that happens to an awful lot of them, some of them are such a good idea and everything's so lined up and the external factors are so positive. You just leave them alone and you better not tamper with them.
But all too often, and really in a pretty high percentage of cases, companies do face challenges and at those moments as the venture guy and a board member and financier, you really have a tremendous contribution to make to those companies at those key moments. I've been in many scary restarts and potential end of life experiences that I've made some contributions that have allowed teams to go on to really great successes. That was what I got the most satisfaction out of.

Bobby Franklin (33:20):
Well, as I mentioned as I introduced you, you've been doing this for a few years, so maybe you could talk about how the VC industry has changed since you started in it.

Arthur Patterson (33:29):
Today, there are about 10 different specialist layers of funders for companies, and you need to be able as you operate a business, leverage those layers, both in terms of deal generation and getting your deals financed, so it takes some deft work. Used to be able to do these companies with one other partner and have that process. I really miss the satisfaction you got out of the close personal relationships you used to be able to have with a co-investor and developing these companies through thick and thin. That's a lot harder today for a variety of reasons, but all for the good, it's hard to complain.

Bobby Franklin (34:10):
Are there any additional changes that you would like to see in our industry?

Arthur Patterson (34:15):
We talk a lot about inequality these days. To me, the solutions to inequality are to increase the pie, not to just go dividing up what's already been created. I think the treatment of options for employees is really unfair. These guys take as much risk as the early founders who receive shares and yet their option treatment, they're giving up maybe as much as 60% and the timing's really bad for their contributions to the companies. It would broaden the base of winners in these companies if their option treatment were just the same as the founders. Now I'm sure Congress may, in their wisdom, think that the founders are the ones whose treatment needs to be changed, but I'm a big believer that you try to make the pie bigger and everybody wins.

Bobby Franklin (35:06):
Sounds like we're going to have to get you back into DC to talk to policy makers about some of these ideas, but we'll talk about that another time. Arthur, we've recognized you as the Lifetime Achievement Award winner. What do you think your legacy in VC will be?

Arthur Patterson (35:22):
Well, legacy sounds very grand and I think a bit presumptuous. Some people establish museums for themselves, but I'd be happy if our firm just maintains its reputation for quality and continues to provide great opportunities for careers. Both for the people in the firm and for the companies that we back. I mean, that's the enormous contribution of venture capital over the period of time. We account for the dynamism of the whole economy now and produce millions of jobs that wouldn't be there. If we keep doing that, that'd be all I'd like to see happen.

Bobby Franklin (36:03):
Lastly, Arthur, how does it feel to receive the NVCA Lifetime Achievement Award?

Arthur Patterson (36:09):
Well, I'm very glad to not get it posthumously, but I'm honored and humbled to be considered part of the group of guys, almost all of whom I knew pretty well, that you've given this award to in the past. These are very illustrious ranks. I just hope this doesn't mark the end of my career.

Bobby Franklin (36:31):
Well, I'm sure it won't. Arthur Patterson, thank you so much for joining us and congratulations again on receiving the 2022 NVCA Lifetime Achievement Award.

Arthur Patterson (36:44):
My pleasure. Thank you, Bobby.

Bobby Franklin (36:50):
I am so pleased and honored to have Congressman Ro Khanna join us today on Venture Capital. Congressman Khanna represents the California's 17th Congressional District, the heart of Silicon Valley. He's serving his third term. He serves on the committees of agriculture, armed services, as well as oversight and reform. He's done amazing amount of work in a short period of time. Congressman Khanna, thank you so much for joining us today.

Congressman Ro Khanna (37:17):
I'm honored to be on. It's great to be on NVCA's podcast. I've enjoyed working with so many of your members.

Bobby Franklin (37:24):
Well, thank you for that. When I was thinking about this conversation, I was excited because I saw you're on the ag committee and it's probably surprising to some of our listeners that here you are representing the middle of Silicon Valley and you're on the ag committee. But I smiled because I started on Capitol Hill and in fact, I'm going to date myself and show how much older I am than you. But I remember being in the house ag committee room, working on the '96 Farm Bill, pulling all nighters. If I look at your bio, I think you were in college at that time, so I'm dating myself. But I grew up in a rural part of Arkansas and so what you have done since you've been here is fascinating. Just off the top, I want to know more about your book, why you wrote it, a little bit about it. I want to make sure our listeners understand. Congressman Khanna wrote a book called Dignity In A Digital Age: Making Tech Work For All Of Us. Let's hear the backstory here first.

Congressman Ro Khanna (38:24):
Well, thanks Bobby. I have an amazing district, $11 trillion dollars of market cap in Silicon Valley with Apple, Google, Intel, Yahoo, Cisco, LinkedIn, Tesla. I saw that young people in my district are very optimistic about America, they think the world is their oyster. But that hasn't been the case for large parts of our country, places where people have seen the de-industrialization of their towns, their kids having to buy one way tickets out, the closing down of main street. I was thinking about how do we get the technology opportunities that are in my district, the 25 million digital jobs that we're going to have by 2025, into places that have been left out? How do we get them into rural communities, into Black and brown communities? One of the reasons I'm on the agriculture committee is that it is all about economic development of rural America. A lot of the book provides a roadmap for how we can create the decentralization of economic opportunity, the economic empowerment of places left out to participate in the modern economy.

Bobby Franklin (39:31):
Let me ask you this question. I mean, all of those companies in that amazing market cap that's in your district, I hear the names and I think, "Oh, what do they all have in common?" Not they're all in Ro Khanna's district, they're all venture backed companies in the beginning. There's a lot of excitement when we talk about venture backed companies. Although admittedly, we care about them when they're just starting, when nobody knows about them and once they grow up and are on their own, we're not really here to represent them at NVCA. But we are proud of the alumni network of the VC industry.
Let's go into the book. I mean, you're talking about how do you make this work for places in rural America? Do you envision a whole venture ecosystem with venture capitalists in rural areas, supporting entrepreneurs in those rural areas? Are you talking about already established companies and what they could be doing with folks in rural America?

Congressman Ro Khanna (40:27):
Well, all of the above. First of all, I have great admiration for the role venture capital has played in the growth of the innovation economy. And you're absolutely right. I mean, most of the companies in my district, all were backed by venture capitalists at key stages in their career. One of the things that the book says is you can't just replicate Silicon Valley. I mean, there's so many parts of Silicon Valley, with Stanford and Berkeley and the university system and certain anchor companies and DARPA investment and venture capital that make it unique. But that doesn't mean that you can't create extraordinary technology opportunities across the country.
What I'm thinking is first, a lot of the jobs that may not just be for Google or Apple, but also for Fortune 500 jobs in technology can be across the country. If you think that automobile is a computer on wheels, there's no reason that those manufacturing jobs of computers on wheels need to be in Silicon Valley, that tech proficiency can be in Michigan. But beyond that, we do need a dispersion of venture capital investment, as Steve Case, obviously famously is doing it and doing it very well.
I've now seen with the COVID realignment, a number of venture capitalists who are seeing that there's a great talent across the country. They don't all have to move into Palo Alto to be successful. In fact, a good friend of mine, Ron Conway, I sent him the book and he read it. He said, "Ro, we're already doing all of this. Why do you need to write about it?" I do think post COVID, there has been a move to decentralize these investments. Right now 50% of venture capital is in the Bay Area, but that doesn't necessarily have to be the case, as talent is everywhere.

Bobby Franklin (42:07):
Another point that I would just make and I think it compliments what you just said about what we've learned from the pandemic and how it is important for there to be an ecosystem in other places to support entrepreneurship. We created Venture Forward and the whole idea behind Venture Forward as a 501(c)(3), is to democratize access to information education. We have VC University, an online cohort we developed with our friends up the bay from your district at Berkeley, that we have online curriculum. We're really trying to help people be exposed to the idea of venture capital investing and hopefully encourage them to form capital and support entrepreneurs in rural America and other places. What else in your book would our listeners find amazing?

Congressman Ro Khanna (42:56):
Well, I think you're nonprofit to democratize venture capital is very promising. There are two points I make in the book in some detail. One is to the extent that government wants to have matching funds for venture capital, which I think is a good idea in certain places, it can't be administered by people like me or people in Congress or people in administrative agencies who are totally disconnected from the actual technology. We need to look at the local venture capital network there, get people without conflicts and they need to recuse themselves if they have conflicts. But really have local venture capitalists who understand the industry, help administer these funds. I'm very much into public/private partnerships, but looking at the unique talent that people in venture capital have and not having the arrogance to think someone sitting in Congress for years or sitting in an administrative agency is going to understand the playing field or the latest technologies.
The second thing that I discuss in some detail in the book is the importance of public/private collaboration at our land grant universities. There should be courses, certificates short of a four year degree that prepare people for all of these jobs. By the way, they're not going to be high coding jobs. As you know, the mantra is low code, no code. A lot of these jobs don't require coding anymore, but they may be just understanding basic technology to do sales, to do data management, to do manufacturing. They could be for a lot of these Fortune 500 companies. And these land grant universities can be great places of getting those credentials, but they have to be in collaboration with what the local industry needs, what the private sector needs, what venture capitalists know are needed. The book has hundreds of these practical suggestions of what we could do to get a goal of two million digital jobs in rural America, Black and brown communities by 2025.

Bobby Franklin (44:43):
I love it. You don't know this, but in between me working on the Hill and my off the Hill career, my first job off the Hill was actually at a consulting firm and we represented the land grant colleges and universities, so I'm very familiar with that. I also currently serve on the Dean's executive advisory board for the Walton College of Business and have some vantage point to look into what's happening in the middle of the country, particularly Northwest Arkansas.
Congressman, when you talk about the public/private partnership, what comes to my mind is your authorship of the Endless Frontier Act, because that's really at the heart of a piece of legislation that we have vastly supported. We are so excited about the prospects of Endless Frontier Act. I know it's got a gazillion different names by now, but that's what you looked at in that legislation, right?

Congressman Ro Khanna (45:35):
Absolutely. I mean, the Endless Frontiers is very simple. It's about making sure we're investing in the breakthrough technologies of the future. Quantum computing, AI, clean technology, semiconductor manufacturing, electronics manufacturing, and it's going to pass. I mean, it's now part of the Competes Act. It is going to be the largest increase in science and technology in this country since the Kennedy years. Many people at NVCA were very helpful in helping Senator Schumer, myself, Gallagher and Young, put it together. An important part of the bill, which is now called the Competes Act, is the commercialization aspect. It's not enough to just do the theoretical science in the United States. We have to have the product development. We're creating a new technology directorate at NSF and Pancha, I know well, is the leader there. I'm going to have him come out to my district in Silicon Valley to meet with people to say, "How can the NSF be part of not just the research, but also the production commercialization, which is all part of the job creation effort?"

Bobby Franklin (46:38):
I think that's so important and that's a message for so many people. I mean, taxpayers on either side of the aisle should be able to get behind the idea that we should be investing in our country. This is a competition issue with other countries, and that's on a lot of people's minds these days. But also, and this is why we're so excited to support your efforts around Endless Frontier Act, the commercialization. I think there's a lot of things, you're talking about government, you're talking about private investors and entrepreneurs and stuff, but we also have to have a message to the universities. Because at the end of the day, research is great. But if it's just a white paper that sits on somebody's shelf, that's not nearly as good as if it turns into a commercial enterprise, creates jobs and takes that wonderful research into a product or service that benefits society.

Congressman Ro Khanna (47:32):
You're absolutely right, Bobby. I mean, look, we didn't invent in this country, the automobile or the jet engine, but we figured out how to mass produce it. That's what made us a superpower. I love the fact that we have Nobel Laureates and we need more Nobel Laureates, but that's not sufficient to have significant employment, good jobs, economic productivity. We also need to understand how we produce things, how we commercialize things, how we take things to market. That's the American genius, that's the entrepreneurial spirit. That's the sense of why we've become the power that we are.
What we're saying is the NSF needs to be focused on that and partner with our great entrepreneurs, with our great venture capitalists who can help do that. It's not just that it's more economically productive. It's also that's what ultimately improves people's lives. It was great that we had the research for mRNA through the NIH and University of Pennsylvania, but that wouldn't have been sufficient. What was equally impressive is the mobilization to get that research into vaccines that within a year after the pandemic, could be shots in people's arms. That's equally important and we have to focus on both the research and the deployment.

Bobby Franklin (48:45):
Well, since you raised mRNA, I've got to do a shout out because Flagship Pioneering is a venture firm and they in their firm created a company called Moderna, which took what you're talking about to the next level and look at how we have all benefited. I actually did an interview with Stephane Bancel, who is the CEO, for our audience a year or so ago and it was amazing. The most important question I wanted to ask him, he had done tons of interviews about the vaccine, I wanted to ask him what's on the drawing board. I was amazed at all the diseases and the things that they believe that mRNA can actually cure. Can you imagine curing diseases just through the simple technology of running a code in a genome sequence?

Congressman Ro Khanna (49:31):
It is remarkable and it is what gives, I imagine, so many people in your industry, venture capitalists, a sense of fulfillment. I mean, ultimately we all want to make an impact. We all want to do something with our careers that leaves our communities, our nation, our world, a little bit better off than when we started. You look at the impact that is there in biotechnology, you look at in modern medicine, the opportunities in synthetic biology what's going to be available. These are things that can transform the human experience and venture capitalists are right at the forefront of it. Look, I know enough venture capitalists, what motivates them most of course, people want to make money, I mean, that's as American as anything. But what motivates them is to really have an impact, to do something that has grand scale, that's going to really impact society. I think when you look at the lifesaving drugs that are being produced and the impact that technology is going to have, especially on climate change, that is really a critical part of any solution.

Bobby Franklin (50:36):
Well, I feel like it's preaching to the choir, having you and I talk about this stuff, but it certainly excites me and it's great to see a member of Congress. Now, I know you have gone around the country, you've spent time and you've gone with people across the aisle. Tell us a little bit about your experience working with your colleagues on the Hill on the other side of the aisle, when you go to their districts and talk about these issues.

Congressman Ro Khanna (51:00):
I've really enjoyed it. I got to visit Hal Rogers, who represents a Trump district. He's been in Congress decades, I've only been in Congress four, five years and he calls that area Silicon Holler. Actually I start my book with that story that this is not Silicon Valley out there saying, "Go become like Silicon Valley." This is Hal Rogers saying, "We want the opportunities to bring in revenue that the internet provides." The interesting thing, the story I tell of Alex Hughes, he's not some coder for Apple or Google or Facebook. He's making refrigerators, he's making dishwashers for General Electric in Louisville, but he realizes that he needs some tech skills, because they're now smart appliances. So he says, "Look, this is something I understand. My family's been making things for generations. I'm just going to make the modern version of that."
This is the same thing you're going to see with Intel going to Ohio. They're making things. These are jobs people get, but they're jobs that are in the 21st century form, which require a technology component. I've worked with Governor DeWine in the past. I think it's so important to cross the aisle. It's no secret, I'm a progressive and I've had spirited email arguments and exchanges with members of NVCA and always value that perspective. But at the end of the day, what I think is important, is that you're willing to engage. You're willing to go to districts different than your own. You're willing to not just attack people who disagree with you, but engage in intellectual argument. That's the marketplace of ideas, that's the hallmark of our democracy.

Bobby Franklin (52:34):
Congressman Ro Khanna, thank you so much for spending time with us today on Venture Capital. It is such a pleasure to have you. It's so refreshing to have a member of Congress that understands our industry and how we can make such a difference. The fact that you wrote a book about how it can make a difference in all parts of our country is just music to our ears.

Congressman Ro Khanna (52:58):
Well, I'm honored that I represent a district in an area with so many venture capitalists. I am a technology optimist, I'm an optimist about entrepreneurship. I call myself a progressive capitalist, but I believe that entrepreneurship, innovation, venture capital are going to be part of the solution for progressive ideals. You can't solve climate without the ecosystem of innovation and entrepreneurship. You can't solve cancer, as the president had called on us to do, without the ecosystem of entrepreneurship and innovation. You won't solve the opioid crisis without entrepreneurship and innovation. So if you care about progressive ideals, then in my view, you have to be a technology optimist and support the ecosystem that allows human civilization to advance. That's what venture capitalists at their best do.

Bobby Franklin (53:46):
I couldn't have said it better myself. Well, thank you and I'll call out the name of your book again, Dignity In A Digital Age: Making Tech Work For All Of Us, by Ro Khanna. Congressman, thank you so much for your time today.

Congressman Ro Khanna (53:59):
It was really an honor. Thank you.

Bobby Franklin (54:04):
Well, that wraps up this episode of Venture Capital. Thanks for listening. But before we gavel out, here's another fun fact. Did you know that President Jimmy Carter loved to watch movies in the White House movie theater? To date, nobody has beaten his record of watching 480 movies in the White House. Now that's a lot of popcorn. Again, thank you for listening to Venture Capital, a podcast brought to you by NVCA. Hope you enjoyed the show because investing in tomorrow starts with smart policies today. I'm your host, Bobby Franklin, wishing good days ahead. Bye for now.