From Private Equity to Climate VC: What I’ve learned moving to growth-stage climate tech investing at G2 Venture Partners
At G2 Venture Partners we invest in technology companies at their inflection points to build a sustainable future. In order to do this well, we go deep into learning how markets operate and what makes business models tick, apply rigorous analysis to understand business trends and valuations, and partner closely with founders and management teams to offer resources that drive strategic priorities. If you are passionate about bringing your experiences, from investing or operating, towards investing in climate-positive businesses, please reach out — we are hiring!
I joined G2 last year, coming from a private equity role focused on leveraged buyouts, primarily of B2B-focused industrials businesses. I hadn’t contemplated venture capital as a career path until I became passionate about sustainability. It soon became apparent to me that investing in the businesses with the greatest potential to shape our fight against climate change meant moving earlier-stage in the investment lifecycle. Like many of my peers at late-stage private equity firms, I had a limited understanding of what goes into growth-stage venture capital investing: Is there opportunity to drive insights through real data and analysis? Are business valuations meaningful? How does partnership work as a non-control investor? And overall, is it possible to repeatedly identify & partner with the future winners of markets that are nascent today?
I can’t speak for every firm in the climate space, but at G2 Venture Partners I’ve been surprised at the extent to which all of the aspects of a rigorous investing approach I’d come to appreciate have carried over into the way we work:
- Market insights: We spend a lot of time exploring emerging products and markets through deep dives, the core of our investment origination process. Our deep dives are targeted research projects that explore a specific thesis in a space experiencing a growth inflection. The goal is to arrive at a point of view that identifies the eventual winners in a nascent market — to do this well we need to understand what customers want and map out the space of players based on the most relevant criteria. Analyses include detailed comparisons of technical capabilities, market & cost positions, and other factors — informed by dozens of data inputs, including calls with founders and industry experts and market reports. Developing accurate & actionable market insights in spaces that are evolving rapidly is difficult! It’s a creative analytical process, and we continue to push each other’s thinking on how to develop new tools and hone our craft.
- Business analysis: Core to a private equity diligence process is slicing & dicing years of detailed historical financial & sales transaction data to understand past and future growth potential. At G2, we are growth-stage investors who partner with businesses as they are experiencing a growth inflection — businesses that have great products and commercial traction (“product-market fit”) and are turning their sights to scaling. For these opportunities there is a wider set of relevant data points that signal a company’s prospects. “Signals” will vary from company to company, so this requires us to get creative with how we acquire and analyze the data required to go deep on understanding the drivers of technical differentiation, commercial growth, and financial performance.
- Valuation: In the venture capital landscape of the past few years, it has been challenging to maintain discipline and also invest actively! At G2 we are focused on investing in winning businesses — ones that will grow and persist for decades. Each of our prospective investments must have a compelling business model and line-of-sight to becoming a market leader, often as a public company. So we build long-term models that value the companies as public market investors will: as a multiple of future profits and discounted cash flows. We believe this framework is an important instrument to narrow our focus toward the investments with the highest likelihood of sustainable success. It’s a critical tool that enables us to invest well through wide-ranging market conditions.
- Partnership: G2 Venture Partners makes investments that earn us a minority ownership stake and often a board seat. The boards of our portfolio companies are composed of management, other venture capital investors, and independent directors. The governance model is different from typical private equity buyouts, but the nature of deep partnership is the same: as investors, we are there to help company leadership work through important strategic decisions and provide resources to help grow the business. At G2 we take this role very seriously and are on call for our management teams. We’ve developed a set of resources that are shared with our partner-companies as they navigate common growth scenarios, on topics such as fundraising, OKRs, financial planning, and running effective board meetings. We take a lot of pride in being the go-to partner and sounding board to each of our portfolio companies.
- Culture: Across all asset classes, investing is an ultra-competitive industry. I believe being able to sustain investing success is about maximizing growth through relentless learning and process improvement. A posture of continuous improvement and development is core to G2’s culture. We are constantly honing our approach and expect the full team to contribute to firm-building. Since I’ve joined I’ve led projects to analyze and improve our deal sourcing coverage and reorganized our research to make our ever-growing knowledgebase searchable and scalable. Underpinning all of this is a culture of true teamwork and fun. While the specific role responsibilities can be more independent in venture capital than in private equity (driven by more independent research and leaner deal processes), at G2 we make it a team sport. Because of this deep collaboration and support across the team, the rate of personal and firm development I’ve experienced is remarkable and makes me especially excited for the future.
If you are interested in investing in sustainability-oriented companies and would like to discuss more of what it’s like to work at G2 Venture Partners, please reach out to us! (info@g2vp.com)
If you’re a founder or CEO working in sustainability who resonates with our approach, we’d also love to get to know you!