Greg Smithies - Turntide Technologies
Heroes > Greg Smithies
May 16, 2022
Why investors are flocking to green building tech
with Greg Smithies of Fifth Wall

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Episode Summary

Buildings consume nearly 40% of the world’s energy and account for a similar percentage of global CO2 emissions. They are also increasingly vulnerable to floods, fires, and other environmental disasters.

This dynamic has created a unique opportunity to decarbonize our planet. For the first time, short-term business priorities are aligning with our planet’s best interests, unlocking the power of the market in the fight against climate change.

According to Greg Smithies, Co-Leader of Climate Tech Investment Team at Fifth Wall, humanity has reached an inflection point where many clean, green technologies have actually become cheaper than their more traditional alternatives. As a result, Fifth Wall’s corporate partners are investing more and more in developing these technologies — a win for businesses and the planet.

After all, as Greg likes to joke, “[with] many of these technologies, you can sell them today to an active climate-change-denying CFO because, on an economic basis, they just make sense.”

In this episode of Net Zero Action Heroes, Greg discusses the major drivers of climate change, how businesses can reduce their energy consumption, and the role buildings will play in decarbonizing our planet.

Guest-at-a-Glance

Greg Smithies

Co-Leader of Climate Tech Investment Team

Fifth Wall

Before joining Fifth Wall, Greg founded and led climate investing at BMW i Ventures for a number of years. His work primarily focused on decarbonizing transport, which led to the company investing about $17.5 billion in vehicle electrification and decarbonizing the supply chain. Before joining BMW i Ventures, Greg led Finance & Operations for both The Boring Company and Neuralink simultaneously.

Key Insights

Our economy was built on things that are bad for the planet. Everything we do, manufacture, or eat consumes energy. As Greg explains, ”Even when you’re eating farm-to-table corn, chances are that while you think you might be having a healthy meal, behind the scenes, it’s still bad for the planet. So long story short, this is, unfortunately, a very complicated problem. And we have to […] rethink nearly every part of our day-to-day lives, our industries, and our buildings.”

Buildings are a key driver of climate change. When it comes to decarbonization, transportation gets most of the attention, but the built environment will play an even larger role. As Greg explains, “Buildings, on average, consume around about 40% of the world’s total power. […] Inside big cities, where obviously we’ve got way more buildings, and bigger buildings, they can consume up to 70% of the total power in a city. […]  So, clearly, buildings are the big bad wolf. […] What we really are trying to do is get people to realize that buildings are such a massive contributor here and really just put them back on the radar.”

Sustainability has become a good business decision. Due to increased energy costs, climate tech is becoming an increasingly important component of any healthy business model. As Greg explains, “[Climate tech] is the largest venture capital opportunity humanity has ever seen. We’ve got 100 corporate partners who give us money to invest. Where they see the opportunity is that we’re at an inflection point where many of these clean green technologies actually end up being cheaper. […] What I do like to joke about is that, with many of these technologies, you can sell them today to an active climate change-denying CFO because on an economic basis, they just make sense.”

Episode Highlights

Decarbonizing Our Buildings Will Require a New Mindset

[03:15] Just about everything you do on a daily basis, unfortunately, is bad for the climate. And so, when we say things like, ‘Hey, we need to decarbonize the planet or decarbonize our buildings,’ it’s a very complicated problem to solve because you have to unwind so many of the assumptions about how we run the world.

Energy Efficiency Is the Key to Our Fully Renewable Future, Especially in the Built Environment

[14:14] The only way to get to completely clean energy is to also — at the same time you’re putting clean energy onto the grid — be cutting back on overall usage.

Decarbonizing the Built Enviuronment Is the Largest Venture Capital Opportunity That the World Has Ever Seen

[25:09] The internet is where everybody in the last 20 years has made all of their returns in venture capital, or [at least] a significant portion of them. The entire internet is only about a $1 trillion per year market, which sounds like a lot, but the whole world is going to need to invest $94 trillion in decarbonizing itself over the next 20 years. […] That’s five internets every year. So even if you just think about this in purely capitalist terms, this is probably the largest venture capital opportunity that humanity has ever seen.

Transcripts

[00:00:41] Greg Smithies: Yeah, thanks for having me. This is fantastic. I’m glad to be an action hero. 

[00:00:46] Chris Pullam: Our very first action hero. I mean, you have definitely, definitely earned the right. So, just to give our audience some background on yourself, can you tell us a little bit about Fifth Wall and what you do there? 

[00:00:55] Greg Smithies: Yeah. Sure. Thanks. So, Fifth Wall is the world’s largest venture capital firm that focuses on what we call the built environment, but think of that as real estate, construction, infrastructure, and more and more so energy, just because buildings consume about 40% of the world’s power. We’re about 6 years old. 

[00:01:09] We’ve got about three and a half billion dollars under management, and probably what’s most interesting to folks about that is roughly half of our money comes from the world’s largest consortium of corporate partners around the real estate and construction industry. So, we’ve got about a hundred of them around the world, seventeen countries and typically by country and by asset class, we’ve got the largest folks in any of these spaces. And what this means is we act very much like an industry consortium, which is we can invest in startups and then turn around and get their products in front of some of the largest buyers in the world. 

[00:01:45] And for anybody who’s selling or dealt with the real estate industry, they’ll realize that this is a very fragmented industry and so getting to mass scale, even though it is the largest asset class on the planet and it’s 10 to 20% of the GDP of just about any country, it is a very difficult industry to break into if you’re trying to sell technology into them. 

[00:02:05] And so, Fifth Wall was founded to try and solve that problem. And then inside Fifth Wall, I co-lead our climate technology fund, which is looking at technologies that do two things. One is decrease the CO2 impact of buildings. Buildings account for about 40% of the CO2 emissions of the planet, right? 

[00:02:21] I think most people think that transportation is the big bad wolf. It turns out that buildings are twice as bad as transportation, so we are definitely the big bad wolf. And then the other thing is that we are also investing in resiliency from climate change because you can’t move buildings and buildings are worth less if they’re underwater or on fire. 

[00:02:38] So, clearly, we need some technology to help save buildings and make sure that the world and our cities are resilient against the inevitable change of climate.  

[00:02:48] Chris Pullam: Yeah, it sounds like buildings are right there in the center of kind of the dilemma that we’re facing with climate change, and it sounds like Fifth Wall is right there in the center of the solution to that problem. Before we really get into investing or the built environment too far, I’d l’d like to get your perspective just on the overarching problem of climate change. 

[00:03:03] So, what does humanity have to do to address climate change in a meaningful way? 

[00:03:09] Greg Smithies: Everything, which is a little bit flippant, but the real issue is that over the last roughly 150 years when we’ve sort of industrialized our economy, basically everything in our economy relies on things that are bad for the planet, you know? If you just break it down to the basics of energy, the vast majority of our energy today comes from things that are bad for the planet, like burning fossil fuels, and then just about everything that we do or eat or manufacture consumes that energy, right? 

[00:03:40] And so, just about everything you do on a daily basis, unfortunately, is bad for the climate. And so, when we say things like, “Hey, we need to decarbonize the planet or decarbonize our buildings,” it’s actually a very complicated problem to solve because you have to unwind so much of the assumptions in how we run the world. 

[00:04:01] Something as simple as, say, “How do we fertilize the crops that go into our food?” Right? That right now is being fertilized with nitrogen that is fixed out of the atmosphere through something called the Haber-Bosch process, and the Haber-Bosch process, I think, consumes somewhere around about 10% of all of the energy on the planet, is just that one industrial process to go into fertilizer, right? 

[00:04:25] But that means even when you’re eating, you know, call it farm-to-table, corn, chances are that whilst you think you might be having a healthy meal, behind the scenes, it’s actually still bad for the planet. Long story short, this is, unfortunately, a very complicated problem and we do have to do sort of everything and rethink how every part of our day-to-day lives and our industries and the buildings that we’re in actually operate.  

[00:04:49] Chris Pullam: Okay. So, I wanted to share a few stats here on climate tech investment because, I mean, as you mentioned, we have to do everything and it kind of seems like we, to a degree, are starting to do everything. So, here are a few stats taken from PwCs 2021 Climate Tech Report, and I want to get your take on these numbers after I drop them here. 

[00:05:05] So, the total investment in climate tech in 2019 hit $19 billion. One year later, in 2020, it hit $25 billion. And then, in just the first half of 2021, it hit $40 billion. And again, that’s just the first half of 2021. So, this is increasing drastically. That’s more than a 300% annual growth in just two years. 

[00:05:27] Chris Pullam: And obviously the numbers still seem to be accelerating. As a leading authority on climate tech investment, it’s super exciting to see this, but what is actually driving this new investment in climate tech? 

[00:05:36] Greg Smithies: Well, first off, I’d say yes, the growth is incredible, right? 300% in, in a couple of years. That’s wonderful, but at the same time, we’ve got to realize how small that is in terms of the size of the problem. I think the IPCC report that came out two-ish weeks ago has numbers on how much we have to invest just to be resilient from climate change. 

[00:05:59] Their number is round about $94 trillion with a “T” right? In the next 30-ish years that we need to invest. To put that in perspective, the entire US GDP is round about 20 trillion, right? So, it’s like 5 US GDPs, and the US is, you know, the largest economy on the planet.  

[00:06:20] So, I’m obviously incredibly heartened that the climate tech investing pace is accelerating and we’re getting lots of dollars out the door, but just also to put in perspective, we could 100X this number and we would still have a long way to go.  

[00:06:30] Chris Pullam: Climate change, I mean, that’s not a new problem. We’ve known that this has been a thing for decades, but it seems like it’s really taking off in the past couple years. So, what is driving that growth now? 

[00:06:40] Greg Smithies: Yeah. We’ve seen a little bit of a perfect storm, ha, ha, no pun intended there. of things lining up, which is one, on the sort of visceral end of the spectrum for the last few decades, climate change didn’t necessarily seem like a real thing. 

[00:07:03] It was kind of ephemeral esoteric. It was something that the scientists were telling us about, but when, you know, the whole West Coast of America’s on fire, the whole West Coast of America is running out of water, there’s a town just north from here, Mendocino, beautiful town, the entire town was trucking water in for the whole of last summer because they’d run out of water, right? 

[00:07:22] Australia, on fire. Cape Town, the entire city almost ran out of water three years ago, right? Germany last summer, floods, right? Texas, beginning of last year, freeze, right? I think just over and over, we are seeing this sort of visceral, almost slap-you-in-the-face reality of climate change, and it’s just getting faster and faster and faster, and harder and harder to deny. 

[00:07:44] So, this is becoming a more real, tangible thing. And then what that has knock-on effects to all of the other big levers that we have in the market. The way that the vast majority of the dollars in the world are allocated are by the pension funds and sovereign wealth funds. 

[00:08:05] These are the big pools of capital that go and then allocate it to real estate investors to venture capital investors, you know, people like that. Those funds typically have the wherewithal and benefit of their countries and their long-term pension holdings in mind, they have to think on 50-year timelines, right? 

[00:08:26] So when they’re seeing all of these wildfires and floods and things like that happening, there’s no way that they can’t start taking the stuff into account when they’re allocating capital. And so the tail that wags the dog on the capital markets, the pension funds, and the sovereign endowments that have these very long-time horizons are seeing what’s happening in the climate today, and therefore allocating their dollars and signing their own net-zero pledges. So, I think this is only going to accelerate, but as I sort of started out in this answer, we could a 100X the total dollars going into climate investing, and it still wouldn’t be enough. So, we’ve still got a long way to go.  

[00:09:02] Chris Pullam: Yeah, I mean a 100X. You’re mentioning governments. You’re mentioning pension funds. You’re mentioning businesses.  But what you’re not really mentioning, and it’s not that it’s not important, but it just won’t really scale up, is, you know, I can recycle all I want in my apartment, but I can’t recycle climate change away. 

[00:09:16] A lot of the carbon impact of a soda can is baked into that can before I ever buy the can, so a lot of this is going to come down to business decisions, and it’s going to come down to how governments respond to this issue. 

[00:09:29] Greg Smithies: Yeah. So, actually, this issue of put the blame and put the onus on the end consumer is a tried-and-true tactic of many industries over the years that have been bad, right? So, think about the tobacco industry. It wasn’t that the tobacco industry was bad. It’s that, you know, people should cut back on their own smoking. 

[00:09:47] Think of the gun industry, you know, guns don’t kill people, people kill people. What most of the people pushing back on climate change dollars going into climate change at the sort of institutional level have for a very long time been pounding the drum is that, “No, consumers just need to change their behaviors, you know, recycle more, turn down the thermostat,” things like that. 

[00:10:06] It’s not that the oil and gas industry is bad, but what we have to realize is that we, as consumers, unfortunately, the things that we can ultimately change in our day-to-day life, we can demand better products from the people we’re buying from, but there are very few things that we can directly do that can actually solve this, and this does have to be solved by trillions of dollars shifting from, say, the oil and gas industry over to the solar industry. We can do that by voting different people into power, by putting our money in financial institutions that actually care about this stuff, by investing in companies that are clean and green, right? 

[00:10:46] But at the end of the day, as you said, you can’t recycle your way out of this.  

[00:10:51] Chris Pullam: Yeah, and just to keep on the topic of some of those major trend and major decisions that could impact climate change investment, there’s a lot of uncertainty in the news now: the war in Ukraine, you have the global supply chain issues, skyrocketing energy costs. How do you think these will impact climate tech investment going forward? 

[00:11:06] Greg Smithies: Well, I think there’s a short-run impact and a long-run impact. The short-run impact is actually, unfortunately, going to be negative for climate change. In the US, the whole fracking industry in Texas over most of COVID was not profitable to run, so many of those fracking organizations shut down. 

[00:11:27] They shut down a lot of the shale and things like that. What this in the short-run in terms of global economics has done, it’s pushed the cost of oil up to wherever it is today, to 140 bucks a barrel, somewhere around that. The economic sort of tipping point for a lot of those shale reserves to be tapped is at, like, 60 or 70 bucks a barrel, right? 

[00:11:52] So, at 140 bucks a barrel, absolutely, it starts to be a no-brainer that people should turn on some of these other alternative sort of higher-cost sources of fossil fuels. So, I think in the short run, we will see more reserves like that being pulled out of the ground. However, in the long run, what Ukraine has done for us is it’s made most of the world, especially Europe, realize that energy independence and clean energy independence is actually about national security. 

[00:12:23] The only reason why we were worried about putting sanctions against Russia was because Russia has influence on us because of oil prices, right? The only reason why Germany was worried about putting sanctions on Russia is because Russia has influence on Germany because of gas prices, right? What this put in big, bold headlines is, “Hey, the easiest way to take care of people like Russia, or, you know, bad actors in the Middle East or the Venezuelas of the world and prevent them from having influence over you is by laughing in their face and saying, ‘Hey, I’ve got clean green energy, and I don’t need you anymore.'” 

[00:12:58] Greg Smithies: So, I think in the long run as clean energy independence shifts from sort of an ethical thing to, “Hey, this is a national security thing,” all of a sudden you pick up a whole bunch of people on the right side of the aisle who traditionally haven’t necessarily supported this. But you know what people on the right side of the aisle almost all support? It’s national security, right? 

[00:13:20] And so, on the left-hand side of the aisle, you can say, “Clean green energy is good for the planet. It’s good for your pocketbook because it’s actually cheaper. It hurts fewer people because you don’t get asthma from coal,” all of those sorts of reasons, and on the right-hand side you’ve got those reasons plus now national security, which all of a sudden means you’ve got more bipartisan push for these sorts of things, not just in the US, but across most of the world.  

[00:13:43] Chris Pullam: Yeah, and I mean, this podcast is not about Turntide, but Turntide’s specialty is energy efficiency. Where do you see energy efficiency coming into play here in partnership with renewable energies? 

[00:13:52] Greg Smithies: Yeah. So, it’s very clear that we have such an enormous mountain to climb in terms of decarbonizing that we cannot just get there by swapping all of the energy for clean energy because our total usage of energy is growing. So, if you’re trying to swap out and rebuild the entire energy infrastructure at the same time that demand for that energy infrastructure keeps growing, it turns us into kind of, like, a little bit of “You’re running on a treadmill,” right? 

[00:14:18] Like, as fast as you’re putting solar onto the grid, the total demand is growing, and so you still have to keep your coal plants online. So, the only way to actually get to completely clean energy is to also, at the same time, as you’re putting clean energy onto the grid, to be cutting back on overall usage. 

[00:14:41] Now, how do people cut back on overall usage? Typically it’s very difficult to make people and businesses and companies change their behaviors, right? That is an incredibly tough problem to solve. So, asking them to say, “Cut back on the thermostat,” is difficult to do. However, getting someone to a point where they can have the thermostat set at exactly the same temperature, it just turns out that it takes less energy to keep the building at that temperature, that’s kind of a no-brainer.  

[00:15:03] Almost anybody is willing to do that because they don’t have to change their own behavior. That’s where energy efficiency technologies like Turntide, like next-generation heat pumps, like just having better-insulated buildings, things like that really take into account because you get the bonus of saving energy,whilst also not having to ask anybody to change their day-to-day behavior or be uncomfortable, for example. 

[00:15:36] Chris Pullam: And now that we’re talking about buildings, you mentioned at the beginning of this episode how the built environment actually uses, what, twice as much energy as transport? Even though most people think about the transport industry when they think about pollution and global warming and really anything down that direction. 

[00:15:51] Why do you think it is that people immediately think about transport, not buildings? I mean, we’re in buildings all the time. 

[00:15:56] Greg Smithies: Yeah. I think it’s actually almost like we’ve lost the forest for the trees. It’s like buildings are right in front of us, and so we just kind of forget about them, or we are inside the building, and so we don’t even think about it.  

[00:16:09] But yeah, just to put some numbers around this, so buildings on average consume around about 40% of the world’s total power, not just electricity, that’s also natural gas. Like, 70% of the world’s natural gas is burnt inside buildings to heat them. Inside big cities, where obviously we’ve got way more buildings and their bigger buildings, they can consume up to 70% of the total power in a city. 

[00:16:29] Now, you juxtapose that against transportation, all transportation, planes, trains, ships, trucks, cars, all of them combined, only about 20% of total energy goes into those, right? So, clearly, buildings are the big bad wolf, but as we said, people kind of forget about them because they’re almost too obvious. 

[00:16:47] What we really are trying to do is get people to realize that buildings are such a massive contributor here and really just put them back on the radar because people just don’t really realize this. 

[00:17:00] Chris Pullam: So, how do buildings consume this energy? I mean, you look around, I feel like lighting, lighting’s always been in the news as an opportunity to cut back on energy consumption, but what else goes into energy consumption in buildings? 

[00:17:13] Greg Smithies: Yeah, So there are three main buckets. One is lighting, however, we’ve kind of gone through this LED revolution where in the vast majority of big commercial spaces, the lights have been switched from incandescent bulbs or halogens or something else to light-emitting diode bulbs, so it’s kind of like we’ve hit the low hanging fruit on lighting at this point. 

[00:17:34] So, the buckets that are left for us are heating, cooling, and water heating, which accounts for about 80% of the remaining opportunities there. Heating, the issue is that the vast majority of heating is done by burning something. The issue is that’s incredibly inefficient because if you’re burning, say, one watt of natural gas, that creates round about one watt of heat. 

[00:18:10] It’s around about a one-to-one ratio. It’s 100% efficient, which sounds great. However, we have way better ways of heating buildings that are actually more than a 100% efficient. Now, this sounds crazy, it sounds like breaking the laws of thermodynamics here, but what a heat pump does is instead of creating heat, it actually just moves heat. 

[00:18:31] So, just the same way that an air conditioner moves heat from inside your building to outside of your building. If you run that in reverse, you can move heat from outside the building to inside the building. Even when it’s cold outside, you can still move it the same way that an air conditioner can still cool your room if your room is already cold. 

[00:18:46] And what these do, because you’re moving heat as opposed to creating heat, one watt of energy going into a heat pump can actually move around about three watts of heat into your building. They’re, on average, 300% efficient. So, the point here is that even if you’re burning natural gas to make electricity, running a heat pump is still way more efficient than burning that same natural gas inside your building to heat the building itself. 

[00:19:12] So, long story short, whilst we have solved most of the lighting draw issues, heating and cooling and water heating remain two big, big buckets. However, what a lot of people forget about is that we are about to get a much larger draw of electricity going into our buildings than we’ve ever had before because of transportation. 

[00:19:37] Electric vehicles are becoming more and more popular, and electric vehicles are powered by electricity, and that means now you’re going to be charging your car at home instead of filling up with a tank of gas down the road. 

[00:19:55] And so the total amount of electricity going through buildings because of electric vehicles and switching from natural gas furnaces to heat pumps is roughly gonna 4X over the next 20 years, which is a massive increase in the total amount of electricity. So, what we’ve got to remember here is that buildings, because they need to be heated, they need to be cooled, and they are actually going to be the point where we are getting power for our transportation as well, are going to be a much larger and larger portion of the total amount of energy that’s being consumed around the planet. 

[00:20:26] Chris Pullam: Yeah, it sounds like we need to find a solution to this problem now, as opposed to 4X later. I also think a lot of people, when they’re listening to this sort of stuff, probably imagine their own home, their apartment, their house, wherever they live. But buildings also cover commercial buildings, industrial buildings. Some sorts of buildings use way more energy than others, and it’s important to address buildings on all sides of that scale. 

[00:20:53] Greg Smithies: Yeah. . So again, just to kind of put it into numbers, because here in the US, this is where I’ve got the numbers for, single-family homes are about 20% of the CO2 problem, and all of the other types of buildings are another about 20% of the problem. 

[00:21:11] Now, that’s in the US because A, we have a lot of freestanding, single-family homes and, by definition, a freestanding building is less efficient than a high-rise building because you’ve got four walls and a roof that are open to the air, right? As opposed to, in a high-rise building, an apartment probably only has a front facade that’s open to the air. 

[00:21:32] And then, secondly, in the US here, we build all of our houses out of wood. Sso they are just not very well insulated. I would say in the US, single-family homes are a larger portion of the problem than in many other countries, but we shouldn’t forget that you have single-family homes as part of the problem, but then all of the other buildings as a significantly large part of the problem, as well.  

[00:21:53] Chris Pullam: Awesome. And then, before we go any further, I think it’s worth taking a step back, because you’re obviously so knowledgeable of this and super passionate about climate tech. I’m curious, how did you get started in investing in sustainability in the first place? 

[00:22:09] Greg Smithies: Yeah. I took a little bit of a meandering path to get here. I came into Fifth Wall about a year and a half ago to set up the climate investing team here before it really existed, and that was because I’d done this one time before. Before Fifth Wall, I founded and ran climate investing for BMW’s iVentures for a number of years before this. 

[00:22:29] The cornerstone of that thesis was that transportation needed to decarbonize. Now, these are public numbers at this point, but that led to BMW now putting I think about $17 and a half billion into electrifying vehicles, decarbonizing the supply chain, all of those sorts of things. 

[00:22:46] So it’s kind of like my work there was done and hence I was looking for the next industry that needed to decarbonize. And some of these numbers that I’ve been rattling off, right? That buildings are 40% of the total world CO2 problem, I had no idea about it. I actually thought it was all transportation that was the big bad wolf. 

[00:23:01] So, when I found that out, that was kind of check the box number one. Check the box number two in venture capital 101 is that you should just invest in large industries, right? Well, turns out buildings are the largest asset class in the world by far.  

[00:23:19] There are $326 trillion of buildings out there, and what’s really great about that is because there are so many buildings out there, any market for any product inside the buildings has massive potential. So, in Turntide’s world, the market for electric motors inside buildings is like a $100-billion-per-year market. 

[00:23:35] Any startup would blush with a market size that large, right? It’s incredible. So, long story short, after BMW, I was looking for what is the next big industry that needs to decarbonize. But getting into climate investing in the first place actually comes out of my time I worked in the Elon Musk world. For a number of years, I was a head of finance and operations at two of his companies: at The Boring Company, where we were digging tunnels and, more importantly, selling flame throwers, and at Neuralink, where we were trying to put microchips into people’s heads. 

[00:24:02] It turns out you can actually do both of these jobs at the same time, which was because digging tunnels and putting microchips into people’s heads is actually the same job. You’re just digging holes, but they’re different size holes. 

[00:24:20] Greg Smithies: But I had gotten into those jobs from my previous job before that, which was at a different fund called Battery Ventures, where I was doing industrial tech investing, and what I was seeing was, A, if we are going to decarbonize the planet, which is what I was getting out of my time with Elon, which is that this is a critical existential problem that we have to solve, and we can’t do that with software. 

[00:24:41] There’s only so far that an intelligent Nest thermostat is going to help us to decarbonize our buildings or that better algorithms for shuttling traffic around is going to decrease transportation emissions. You actually have to have hardware. 

[00:25:00] Greg Smithies: You actually have to have new equipment. You actually have to have new physics. And so marrying together my industrial tech investing background from Battery, where I was doing things like energy, construction and manufacturing supply chain, with this existential crisis that we’re trying to solve in climate that came out of time with Elon Musk, putting those two things together, it becomes kind of obvious that, 

[00:25:25] “Okay, we should go and do industrial tech type investing in climate tech,” and then you layer on top of that, “Hey, the internet is where everybody in the last 20 years has made all of their returns in venture capital, or at least a significant portion of them.” The entire internet is only round about a $1 trillion per year market, which sounds like a lot, but the whole world is going to need to invest $94 trillion in decarbonizing itself over the next 20 years. 

[00:25:54] That is, you know, $5 trillion per year every year for the next 20 years. That’s five internets every year. So, even if you just think about this in pure capitalist terms, this is probably the largest venture capital opportunity that humanity has ever seen.  

[00:26:13] Chris Pullam: Well, that’s a perfect segue into my next question. You did kind of touch on it on your last answer, but just to dig a little bit further. You’ve talked at length about kind of the humanitarian reasons why we should care about climate change. I mean, it is going to impact all of our lives.  But what’s in it for you as a company to invest in climate tech? 

[00:26:31] Greg Smithies: Well, for us, as I said, from a purely capitalistic perspective is that this is just a monstrous massive opportunity and juxtaposing against where everybody else has made all of their tech returns and everything in the last 20 years, I think it is a travesty that for the last 20 years humanity’s best and brightest, our best Ph.D.s and all of these people, have been going off to the Facebooks and Googles of the world and spending their IQ points on ad click-through optimization, right? 

[00:26:49] For shame. That is just a sad, sad use of IQ. What I’m very excited about is that we are now, because of the size of this opportunity, seeing that our best and brightest people instead are going into climate tech. 

[00:27:14] Kara Swisher has this saying that the world’s first trillionaire will be a climate tech entrepreneur. Right? And I would like to just get people excited about this. But back to your original point, where does Fifth Wall see the opportunity here, or why is Fifth Wall doing this outside of the ethical?  

[00:27:32] It’s because we fundamentally do believe that this is the largest venture capital opportunity humanity has ever seen. Where our 100 corporate partners who give us money to invest, where they see the opportunity is we’re at an inflection point here where many of these clean, green technologies actually end up being cheaper. 

[00:27:52] So take, for example, Turntide’s motors. The payback on one of these motors is 18 months to 4 years. But then that motor sits in your building for the next 20 years after that just sort of saving you money. It’s almost like a no-brainer. It’s good for the planet. It’s good for your pocketbook. 

[00:28:10] And what I do like to joke about with many of these technologies is that you can sell them today to an active climate-change-denying CFO because, on an economic basis, they just make sense. Solar power today is the cheapest form of electricity that humanity has ever seen. It is cheaper today to build a solar farm, a brand-new solar farm, than it is to keep running a coal plant. For around about 70% of the world’s population, that math works out. 

[00:28:40] So, we’re at this inflection point where it used to be that being clean and being green was just an ethical imperative, and you were like, “I’m gonna be clean and green, but it’s gonna cost me a lot more.” But we’re at a tipping point where, for many of these technologies, “Hey, you get to be clean and green. You get to be ethically good. Oh, and by the way, it also happens to be cheaper.” So, it’s kind of cheaper, better, faster, it’s sort of a no-brainer.  

[00:29:05] Chris Pullam: Yeah, sustainability is becoming good business. And it doesn’t seem like a lot of people are coming around to that, but a lot of people have already come around to it. That same PwC report that I mentioned earlier says that there are more than 3,000 climate tech startups out there right now. 

[00:29:19] From your perspective, you can’t invest in all of them. I’m curious, what are you looking for in potential investees? 

[00:29:25] Greg Smithies: So we do have two funds here. We do early-stage investing: As, Bs, and Cs. And then we do late-stage investing, which is sort of Ds, Zs, and pre-IPO. That’s a very wide swath, but think of us as being able to write checks from a $5-ish million early-stage check into a $100-ish million pre-IPO round and everything in between. What we are looking for is people who fit into one of two buckets. 

[00:29:52] You have a technology that is decreasing the CO2 impact of the built environment. This might be materials. It could be clean concrete, clean steel. It could be equipment into buildings. It could be air conditioning systems, heat pumps, things like that. It could be super boring stuff, like better windows, better doors. 

[00:30:10] Also what a lot of people forget about is that if we set the problem as decarbonize the built environment, because buildings consume so much of the world’s power, it also means that we’ve gotta clean the grid, as well, so, everything like solar, wind, batteries, all of those things are in scope for us, as well. 

[00:30:26] And also a lot of people forget that a significant portion, I think it’s about 40% of the world’s waste, is coming out of those buildings. So what’s also in scope for us is things like recycling and atmospheric water generation and recycling of water and greywater systems and things like that, as well as other adjacencies, like EV charging. 

[00:30:48] So, that’s the first bucket, things that directly reduce CO2 in any of these parts of the value chain. The other part is resiliency, and as I said, buildings are worthless if they’re underwater or on fire, so technology this includes any technology that looks at climate risk or insurance for climate risk, as well as literally just ways to physically protect buildings. 

[00:31:09] How is it that we can prevent half of the buildings in Miami from going underwater in the next 50 years is kind of important, as well. So, those are in scope for us, too.

[00:31:19] Chris Pullam: Awesome. And then, I mean, for our listeners, Fifth Wall’s website has a section where you can check out part of their climate tech portfolio, and there are some amazing companies on that list. I would highly recommend that you check that out. Greg, again, there are some really cool companies on that list. Are there any that you’d like to mention specifically here? 

[00:31:33] Greg Smithies: Well, I’m not sure if you’ve heard of this one company, it’s called Turntide. No, but I’m joking. So I think probably the interesting ones that we have up there, we’ve got another seven that are in closing right now that, that aren’t actually announced yet, so people should go and check and hopefully by the time this comes out, there’ll be a bunch more on there. 

[00:31:53] But we are invested in a company called Veev. Veev is panelized construction. They can put together a building. It goes up roughly twice as fast for a third of the cost. That building ends up being passive house, meaning it’s, very, very well insulated, and it also happens to be built with all recycled steel. 

[00:32:13] We’re also invested in a company called ICON. They 3D print houses. Their houses, on a full lifecycle perspective from a carbon point of view, are roughly 70% less bad for the planet than a typically built house. But more importantly, the house goes up three to four times faster and cost 60% less. So, to our earlier point, many of these clean green technologies today are just better for business. 

[00:32:37] This is one where it’s faster to put up, and it’s cheaper, and it’s better for the environment. It’s no longer a case where you have those three things, and you can only ever pick two. So, those are two very interesting companies that have been announced, but what I would say is you should check back to fifthwall.com/climate whenever you listen to this because we’ve got another seven that are in the hopper right now.  

[00:32:57] Chris Pullam: Cool. I will definitely be checking that out. And, I mean, I only have a few more questions, but this is a great, a great way to close out with all the hopefulness and with all of the innovative companies that you’re mentioning here.  

[00:33:11] So, again, I only have a couple more questions, but these companies and other similar companies, they can’t create, let alone scale this tech without backing from investors like you and Fifth Wall. I’m just curious, does anything you’re seeing from your perspective as an investor make you hopeful for the future? 

[00:33:23] Greg Smithies: Pretty much everything. So myself and my partner here on the fund, we’ve kind of lived through what I would call climate tech 1.0, which was roughly a decade ago when we were in the doldrums and sort of cleantech 1.0 died, and we saw big failures. 

[00:33:41] Back then, many of these technologies didn’t make economic sense, right? Solar power was 10 times more expensive than it is today, so if you were buying it, it was only for ethical reasons, for example. But secondly, there were only like 10 funds investing in this stuff, right? So, what you really need to get technologies out the door is you need a line of sight for those technologies to actually be economically viable, and you need a healthy financing ecosystem. 

[00:34:07] You need a whole bunch of seed investors to take those companies from the pitch idea, PowerPoint presentation stage, to actually being a company. You need your A round investors to go and get that company to first product and market, and then all the way through, you need your late-stage folks who are willing to put $500 million into a company so that they can build their third and fourth factories. 

[00:34:28] You need a full ecosystem of financing folks around, and to our point right at the beginning of this discussion, the amount of money flowing into this industry is massively growing. And so we are getting to a point here where we do have a nice ecosystem of people to finance these companies, so that if you are a climate tech entrepreneur today, your journey ahead of you, of other people in front of me who are willing to finance me at every single sort of stage that my company is going to hit, there actually is a path there now, 

[00:35:00] There are actually funds at each stage focusing on all of the different types of businesses that you have out there. So, overall, the entire ecosystem here really does give me hope, and that I think we are gonna head to what Kara Swisher said, which is that world’s first trillionaire is gonna be a cleantech entrepreneur.  

[00:35:20] Chris Pullam: Yeah, here’s for hoping. So, where do you think we’ll be two or three decades from now? I mean, I’m hoping it’s a good place, but curious about where you think we’re headed. 

[00:35:28] Greg Smithies: Yeah, hopefully not underwater. That would be great. Yeah, I think whilst it’s very easy to say, like, “Okay, $94 trillion. How’s the world ever going to address all of these sorts of things?” Humanity tends to procrastinate a lot and then all of a sudden throw everything in the kitchen sink behind something 

[00:35:52] I think what is gonna be very definitive is probably the next roughly five-ish years as to whether or not we sort of get over ourselves, stop procrastinating and decide to really throw everything in the kitchen sink toward decarbonizing. From what we’re seeing now, as we said, the uptick in investments, the uptick in total number of companies, we’ve been at this around about a year, and we’ve already spoken to 1,200 companies, right? 

[00:36:23] I think 10 years ago, there weren’t even 1,200 climate tech companies out there. You said there’s 3,000, I think that number is probably going stale by the minute, which is great. So long story short, the next five-ish years, I think, are gonna be very definitive for whether or not we do manage to save ourselves as a species, but I do have faith that humanity does wake up. Sometimes we just wake up late, but we’ll pitch up. You know, maybe our hair will be a little bit tussled because we didn’t get a shower, and maybe we missed our morning coffee, but I think we’ll pitch up for climate change. 

[00:36:59] Chris Pullam: I hope you’re right, Greg. Okay, so before I let you go, is there anywhere that people should go to learn more about you or Fifth Wall? 

[00:37:06] Greg Smithies: Yeah, absolutely. You can go to just fifthwall.com/climate and that’s got a bunch of information there, our portfolio, things like that.  

[00:37:15] And more importantly, if you are a climate tech entrepreneur, if you’re looking for backing, we don’t do seed rounds, we do later stage, but if you’re looking for A round and later, you can always just email me at sgs@fifthwall.com.  

[00:37:29] Chris Pullam: Well, Greg, thanks again for everything you’re doing to make our world more sustainable. You’ve been a fantastic edition to Net Zero Action Heroes. It was great chatting with you. Thank you.  

[00:37:36] Greg Smithies: Yeah. Thanks so much.