March 9th, 2022 — Last week, we made our final initial investment out of Powerhouse Ventures Fund I. We’ve come a long way since our inception in 2018, when I set out to raise capital as a first-time fund manager and our first Associate at the time, Alex Harbour, and I figured out how to build a venture fund from the ground up.
The venture capital world loves to cast an air of mystery, building walls and keeping secrets that, all too often, make it prohibitively difficult for women and underrepresented people of color to enter the space. VCs also love to brag about their successes while hiding their failures—and their important lessons—from everyone else.
With that in mind, I wanted to share some of the biggest mistakes I made and lessons I learned as a first-time fund manager.
Trying to do everything can keep you from doing anything. When we started evaluating climate tech startups, we overdid diligence at the expense of losing out on other great deals. In retrospect, we were compensating for feeling insecure about being new to venture. Today, we’re obsessed with efficiency and are constantly iterating on our processes to ensure thorough and timely diligence that doesn’t result in losing out on new opportunities.
Don’t be scared to be too early. Especially in climate tech, where sales cycles can be long and sectors are still maturing, investing early requires a major leap of faith. Investing in startups like WattBuy and Solstice has shown that, with the right team and vision, companies can grow alongside maturing markets to become market leaders within a few years.
Never let your network be static. We pride ourselves on having one of the most extensive networks in climate tech; we can connect startup founders to just about anyone in our space. But as the industry has grown since Powerhouse Ventures’ 2018 launch, it became clear that we need to proactively build relationships with new entrants, as well as deepen our relationships with our longstanding peers, in order to continue to source the best startups in climate tech.
VC is inherently transactional, but your relationships with founders don’t have to be. Most VCs who lead a round expect a board seat. Given the small size of our first fund, we didn’t lead rounds and rarely served on boards. But we learned that our relationships with founders are not predicated on our check size. Over the course of our first fund, and despite only serving on one board, founders came to us to discuss board-level topics including acquisition offers. The trust we built with founders grew into relationships that mean far more than what’s defined in a term sheet.
Not all VCs are men who went to the same two schools. As a women-led and all-women team who didn’t go to the same school as every other VC, we’re an anomaly in climate tech venture capital. 82% of VCs are male and 40% went to Harvard or Stanford. I didn’t start my career in venture, and neither did our team. From our Associate Shaandiin Cedar, a cleantech writer and Diné (Navajo) tribal member, to our Principal Marie Thompson, who began her career in oil & gas in Houston, we learned that our diverse backgrounds are an asset, not a liability.
Setting diversity goals is important but not enough. Powerhouse Ventures set a goal that 25% of our investments would go to startups with at least one founder who is Black, Latine, Indigenous, queer and/or a woman. We fell short of our goal by two percentage points. While we had worked to expand our network and build processes to mitigate bias throughout our investment process, we learned that we had not invested enough resources early enough to reach and exceed our goal.
You can’t be an expert on everything. The best founders are experts in their domain, and the diligence process is about becoming as close to an expert as possible in a short period of time. But in many fields, it’s impossible to reach a sufficient level of individual expertise to fully evaluate a company. We learned to not be afraid to seek out external experts who can inform our understanding and validate founders’ technology.
The most important team to invest in is your own. We’re a small fund, and I had spent the past five years building Powerhouse from a tiny initial check. My history of making the most out of limited resources led me to underinvest in the resources our team needed in order to focus on the things that matter most.
A first-time fund is a startup. Building and launching a fund encompasses nearly every aspect of founding a startup. You raise money, you build a team, you figure out your processes from scratch. And you iterate, pivot, and adjust to a changing market. Most importantly, funds, like startups, are ultimately about people: emotional intelligence, trusting one another, and working towards something bigger than yourself are paramount.
We set out to back seed-stage startups building innovative software to change the way we power our world, informed by a thesis that spans key opportunities in finance & deployment, asset management & optimization, and market access & participation. While learning how to build and operate a fund, we’ve had the opportunity to get to know hundreds of entrepreneurs building solutions that are critical to our climate future. We’re incredibly proud of the portfolio we’ve built and the founders we get to work with every day.
Thank you to Marie Thompson, Shaandiin Cedar, Alex Harbour (now at Prelude Ventures), Emily Fritze (now at The Westly Group), and everyone who has helped us learn these lessons along the way. Thank you to the investors who took a bet on us. I’m grateful for the trust that you put in me, our team, and our vision.
We have a big announcement coming out next week, and I can’t wait to share it with you.
If you’re looking for your next step in climate tech, our portfolio companies are hiring for over a hundred open positions.
To read more about our work at Powerhouse and Powerhouse Ventures, visit our Insights page.