Jan
30
ETL - Jesse Fink and Steve Blank
January 30, 2008 |
The speakers for today’s talk were interesting, although Jesse Fink was the only one talking while Steve Blank asked the questions (I would have preferred that both talk). The two have a long history together and actually met on family vacations to the Galapagos. The discussion mostly focused on green investments as well as utilizing all financial markets (other than VCs) to create change. You can listen to the clip here or catch the notes below.
Jesse Fink Background
Mr. Fink is the cofounder of MissionPoint Capital and Priceline, and acts as President and CEO of Marshall Street Management (MSM). In 2004, MSM established MSM Capital Partners to manage its investments in clean technology and the environmental finance sector. He acted as COO of Walker Digital Inc. and Priceline.com, and previously worked at Georgia-Pacific, Citicorp, and CUC International. He received his B.S. in Resource Management from New York’s College of Environmental Science and Forestry and then received an MBA in Business & Marketing at Syracuse University’s School of Management.
Steve Blank Background
Mr. Blank is a retired serial entrepreneur with over 28 years of experience in the high technology sector. He has either founded or participated in eight Silicon Valley startups since 1978. They include E.piphany, Zilog, MIPS Computers (which Stanford President John Hennesy did research for), a workstation company, a supercomputer firm, a computer peripheral supplier, a military intelligence systems suplier (ESL) and a video game company. He is currently on the board of Macrovision, CafePress.com, IMVU, and Audobon National as well as being part of the California Coastal Commission. Currently Steve also teaches at UC Berkeley’s Haas Business School and at Columbia Business School.
MissionPoint Capital
The current focus of MissionPoint Capital is a transition to a low carbon economy. It focuses on investments in clean energy and environmental finance, as highlighted above, and his investment portfolio includes or has included solar, wind, and other clean technology investments. Mr. Fink pointed out that the East coast is focusing its investments in things like trading carbon credits (environmental finance) while the West coast is focusing on innovations in clean energy. What he would like to see is a marriage of this innovation and commercialization through the financial markets, and is investing in organizations he feels fit in the overlap. An example he gave is a wind turbine servicing company which is both a technology business and a service business.
Platform Companies
The purpose of the firm is to utilize very diverse individuals such as technology, policy, and market experts along with investors to thoroughly research an issue and answer the questions, “What is the problem?” and “How are we going to solve it?” Because there is a huge focus on research, they try to conceive of something called a platform company - an organization that is well positioned for growth. Sometimes these businesses don’t exist, sometimes they have to merge two or more organizations to form a platform company, but either way they try to identify and recognize such organizations
Engaging Market Mechanisms
As I’ve talked about earlier and was mentioned by Mr. Fink, many investors in Silicon Valley are engaged with green technology and startups. Other markets such as bonds, equity, and real estate, though, are not. One thing Mr. Fink says would be great to figure out is how each asset can be utilized to achieve the end goal of solving the HUGE issues we face today. As he sees it, nonprofits help push policy and solutions, markets create said solutions, and his role is to provide capital to create those solutions. Venture capital only solves a piece of the puzzle (creating innovations) and commercialization is providing the billions of dollars necessary to market these ideas. A slight problem also is that the payback is not as large as what some ventures are looking for, and utilizing other markets would provide a better fit in other scenarios.
Public Policy is Important Too
Mr. Fink is also engaged with studying policy making and decisions, primarily because he wants to influence said policy. Even though capital markets are amazing and there is still a lot of potential in that area, Mr. Fink recognizes it will only go so far. With policy, you can influence the flow of capital, and a simple example can be seen with corn based ethanol. It was heavily subsidized by the government and is horrible in the respect that there is a net loss of energy and studies are proving that it is equally bad for the environment. On the flip side, though, understanding how policy influences capital flow is empowering because creating good policy will help capital flow into new markets more effectively.
Entrepreneurs: Born or Made?
This question was posed in one of my previous posts, which can be found here, and the only reason I want to discuss it is because he gave the exact opposite response of my previous article. Mr. Fink decided to argue that entrepreneurs are born, rather than made, and he feels this is true because there are certain traits present at a young age that relate to entrepreneurship. The examples he gives are from his childhood and include a paper route and the constant generation of new ideas. While I personally did not have a paper route, I did start a candy business on the school bus for awhile and made some money from that. Overall, though, I’m not sure if I can believe the idea that entrepreneurs are only born, because I would definitely consider myself a made entrepreneur even though I did start the candy business.
Marriage and Meaning
Speaking of marriage, Mr. Fink met his wife in college and has since realized that people are more fulfilled doing things that are meaningful to them. In the past, nonprofits and for profits were battling, but have also realized that when they could come together and work synergistically they can create meaningful solutions to diverse problems. For example, in order for a marriage to work effectively both the husband and wife need to communicate successfully. In the business realm, nonprofits are beginning to hire business people so the two can understand each other and communicate more effectively.
The Difference Between Public and Private Funding
The private sector is great at jump-starting initiatives and testing the waters, and then the large-scale investments come from the public to test whether or not an initiative scales well. Currently, though, there is a shortage of public funds in the energy sector and as such investments are lacking. One great example currently happening is in the realm of solar, and even though I haven’t done a lot of personal research, I have a strong gut feeling that there is going to be an even larger amount of innovation and activity in this one area in the coming decades.
Audience Question: How did ethanol get where it is if it’s so bad?
When ethanol legislation was being pushed in congress, people weren’t focusing on the environmental side, but rather the energy independence aspect. At the time, people weren’t standing up for environmental impact, but since then there have been a number of people and groups talking about the negative ramifications of corn based ethanol. Another factor influencing the decision was the belief that even if it started out bad, it would eventually lead to cellulosic ethanol and other biofuels which are arguably much better. Essentially, corn based ethanol would start the activity and the hope was that it would lead to cellulosic ethanol.
Audience Question: What is Cap and Trade and how does it work?
The idea of setting up a cap and trade with carbon dioxide came from a successful implementation of a similar system for sulfur dioxide and other gases. The idea is to put a cap on the total number of emissions that can be made. Each company is allocated a certain number of credits, and if they invest in improvements that reduce their credit needs, they can then sell those credits to other businesses that haven’t successfully innovated. Such a system forces nearly everyone to innovate and make energy usage more efficient. The system is being successfully implemented with the Kyoto Protocol, and the question for the United States isn’t if but when.
Audience Question: Are there problems with combining nonprofits and for profits?
With nonprofits that have large endowments, they have the capability of making investments everywhere. Mr. Fink points out that there is so much money locked up in endowments that it should rather be released and directed towards large scale problems that are consistent with the programs that they support. One of the problems though is that people are still stuck with the idea of simply writing a check to show your support and forgetting about it. Instead, Mr. Fink wants us to consider the idea of investing in a nonprofit. In the example of nature conservancy, what if you could own a piece of land that is being protected by the organization you are supporting? An important question, and even though Mr. Fink is interested in the answer, he made a specific point of stating that he is not doing nonprofit stuff and feels that solutions to problems need to come from the commercial and investment sectors.
Audience Question: What’s the relationship between big utilities and small funded companies?
In the case of the big utilities, they are being forced to buy renewable energy sources. They are beginning to work with independent operators to find sources of renewable power, and are becoming accepting of this position because it solves demand needs. One point Mr. Fink made that I especially agree with is the idea of decentralized power and that people creating their own power is great. While the major utilities could see a conflict of interest in this model, it is much like the internet in the respect that it is necessary for a stable and successful network of energy.
Building Momentum in Green Investing
Early investors in the realm of green investing were not return focused but rather thought about double bottom line or triple bottom line investing (you can read my post on TBL economics here). They were not your mainstream investors, and didn’t care if they were great investments. What mainstream investors have realized is that some of these investments offer a great return, which in turn results in more capital, investors, entrepreneurs, and everything else involved. Essentially, we can fuel the economy with green collar workers. There will be a lot of jobs, careers, and wealth created in this field, and that can’t be easily outsources. A simple example to illustrate this point is that you can’t outsource the installation of solar panels. In fact, Mr. Fink references Van Jones (of whom I talked about in this post) and his point that everything can and potentially will be created in the community. Another final comment is that Mr. Fink feels that the realm of energy efficiency is vastly underserved and underinvested, and as such, has huge potential.
Conclusion and Final Lesson
Overall, the talk was very informative on different realms that investors like Mr. Fink are involved with. Even though there was a lot of information and statistics thrown around in this talk, I feel it all boils down to finding the best fit in the market for the ideas you have and the issues you want to solve. Even though VC money is great and cherished in Silicon Valley, there are a number of scenarios and circumstances in which different mechanisms would be more efficient and effective. Understanding and appreciating this point could be key to your future startup.
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[...] is a lot of legislation and talk suggesting a carbon cap and trade system, which I talked about here, and once that gets put into action, there will be even greater pressure politically and [...]