Farewell Urban Us, Hello Third Sphere
Eighteen months ago in a TechCrunch survey, we were rated as one of the VCs founders love the most. This, even more than our performance which now includes 3 unicorns and 5 exits, excites us about our impact in our first eight years. But at the same time, we noticed some profound changes, from remote work to accelerating interest in climatetech startups. We expected these changes to give us even more opportunities to improve the odds for very early stage founders transforming our future’s systems. That kicked off the process that led us to our new home, Third Sphere.
We’ll first share what we learned, especially during the pandemic. Then we’ll introduce our new brand and platform. And finally we’ll offer some ways we might work together to serve founders who are transforming theory into action as they work to build a better world for everyone.
By the end of 2020, we had observed three important changes.
First, we saw a dramatic increase in climate-focused startup investment and nearly 4x increase in quarterly sustainable later stage fund inflows, a startling change from our first discussions in 2013, when we were asked if we planned to create a non-profit because the common belief was that cleantech had failed.
Second, a growing number of LPs told us they were no longer very interested in the limited part of the relationship — they had expertise and networks and wanted to know how to help founders.
And finally, as we moved from our hybrid model to fully remote, we noticed founders were able to hire, sell, and raise remotely. In 2015 we left Miami to be closer to our portfolio and co-investors in NY, LA and SF.
As we observed the changes around us, our platform continued to grow — what started as a seed stage fund and annual event now included an accelerator, an asset finance fund, business development for Asia and even a spin-out startup now in YC. And then there was the confusion about cities and climate — “Does this mean you won’t invest in reforestation or carbon sequestration?”
The Best Climate Investments
Climate investment now spans a very broad range of approaches, from rapidly ramping up what is already working to expanding the universe of moon shots.
Fortunately, unlike “Don’t Look Up”, we’re not facing an either/or decision. What’s great about the surge in climate investment is we’re placing a lot more bets. For Third Sphere, we’ve decided to focus 80% of our efforts with team JL and Leo. We love moonshots, so we won’t ignore those. We’re just going to be very selective.
John Doerr, perhaps the most experienced climatetech venture investor of all time, captures GHG reduction goal perfectly:
Nothing less than drastic, immediate action will do. We need to cut 50% of emissions by 2030 and the rest by 2050.
— Speed & Scale.
Mitigation + Systems Resilience
Gigatons of carbon removal is necessary, but insufficient, because climate action is about much more than carbon. Regardless of what mix of GHG reduction solutions wins out, even the most optimistic scenarios have us living with decades of worsening floods, fires, hurricanes, cycles and droughts. For the wealthiest, this mostly means inconvenience, but for the vast majority of people, this means food or water shortages. Those, in turn, can rapidly lead to large-scale suffering and death. Those who are going to suffer most contributed least to our climate crisis.
Unlike the detailed GHG pathway options, resilience solutions are much less clear. We don’t just need to understand possible technology adoption curves — we need a much more detailed view of how changing climate interacts with human systems from stormwater to supply chains. One of our early portfolio companies, One Concern, is only now starting to offer detailed models of resilience pathways.
Our favorite solutions for the planet often don’t even look like climate solutions. They’re simply better, faster or cheaper options. We’ve come to expect this from our phones, Internet connections and gaming PCs, but somehow we expect less from older technologies like our transportation and buildings. Plus, new and disruptive technologies usually also happen to cut emissions or improve resilience because they’re not burning fuel and can be smaller and more distributed.
It is also very helpful that customer sentiment has shifted — there are now more early adopters who want to be first not just because technologies are new but because they’re good for the planet. They don’t mind paying premiums to get us on the learning curve to affordability. And while hardware is scary to the vast majority of early stage investors, startups can increasingly take selective hardware risks and benefit from overall progress around critical components related to storage, controls, IoT, etc.
Before the pandemic, we’d have to carefully consider geography. For example, we had met a fantastic startup in Cape Town, but we were concerned about their ability to raise funding, which would limit their ability to scale their impact. So we passed.
In 2021 we invested in a different startup from Cape Town. The main difference — they were already demonstrating that they could generate investor and customer interest outside South Africa. By the end of 2021, they closed an oversubscribed funding round, and their customers in the UK and EU don’t seem at all concerned about where they’re located.
It’s not just that we can invest in teams located in more places — it means that we can make more relevant connections, more quickly — we’ve met early adopter customers in Japan who are happy to talk to teams in Israel. Seed stage co-investors in Boston are happy to take intros to founders in Berlin. There was far more friction to benefit from these connections before the pandemic.
Remote also changed how climate-focused LPs engage with founders and fund managers. And we estimate that over half the LPs we know are not just interested in working with us as managers but also in working directly with founders. For some, this path will enable their direct investment strategies, but in all cases, LPs understand they can help us to help founders increase their probability of success — often with little effort, like an email intro to a customer or a brief conversation to share experience and expertise.
Evolution of Our Approach
We’ve been through three major iterations of our model to work with founders, talent, customers, partners and investors. We started with remote because so many of the people we wanted to collaborate with were geographically dispersed.
This turned out to be quite fortunate.
After lots of testing during the pandemic, we’ve learned a few things — Slack, Discord and communities are great, but the thoughtful (double opt-in) 1:1 email introduction might be one of the most powerful forces to accelerate early stage startups.
Michelin Chef at a Hot Dog Stand
Since 2013, we have completed over 100 investments — 6 Exits, 3 Climate unicorns and many soonicorns (over 10x multiple on our invested capital). Importantly, we can also already measure outsized impact — 28 million Mt CO2e. And a number of different metrics and ranking systems have ranked us high — top 1% on NFX Signal for climatetech, Top 10 on TechCrunch, #1 seed stage in North America by Climate50.
At the same time, our story has been complex. We were running an accelerator and a fund and a credit platform, with affiliates in Asia and a spin-out going through YC. People couldn’t figure out if we were promoting unity or the United States with “.us”. One of our favorite LPs summarized the problem:
You’re like my favorite Michelin Chef running a hotdog stand.
We loved the hot dog stand, but we’re happy to relocate to an improved space and story that we hope will also resonate with our community. What won’t change? Our team and commitment to founders.
A Fresh Perspective
We spent a good part of 2021 reflecting and tapping into our close community to hear their perspective on our collective vision and beliefs, and what makes our platform and network special. We enlisted the support of Proto, an outstanding creative group, Proto, led by one of our long-term LPs, Saneel Radia.
Our name and logo is inspired by the third planet from the sun, The Earth. We also recognize that beyond the public sphere and private sphere is an emerging Third Sphere in which we consider not just humans but all the natural systems on which we depend. In nature, business, and tech, there are many meaningful symbols and references of third sphere — we’re learning about more and more as we get situated in the new name.
With Urban Us, we focused on “upgrading cities for climate change”, and with Third Sphere we’re shifting a bit to “reimaging systems.” This scope keeps us active in a lot of the same categories as we were with the sustainable cites and urbantech. Third Sphere is anchoring on 8 key sector categories and emphasizing our alignment with both the Sustainable Development Goals and UN Climate Change Framework to better align with other groups working toward climate impact.
You can see our portfolio and more on each of our areas of focus.
Climate Is More Than Carbon
We understand the appeal of measurement, especially tracking each ton of GHG that might be avoided or removed. But we know that climate is much more than carbon. We’ve already invested heavily in electrification of transport, built environment and industry, but we also see that, even in the most optimistic scenarios, we’ll need to improve resilience. At the same time, we see some opportunities to invest in systems changes. The end goal is the same, better futures, but the path is indirect. For example, can we reduce the friction to fund distributed assets in underserved communities? Or can we begin to price resilience so that we can factor it into how we select the next generation of infrastructure?
We believe we have a repeatable approach to increase the chances of success for each startup we work with. Coaching is hard to scale, but it provides the insights necessary to expand connections and access to capital. The best connections tend to be people with deep, relevant experience or networks that can provide these types of connections — increasingly these people are also LPs and co-investors. And our focus on syndicates helps founders to access even more relevant connections.
We’ve built a portal so we can accelerate connections between founders, LPs and co-investors. This includes qualified lists of customers, investors and talent so that early stage founders can quickly improve their access during critical stages like customer discovery or seed stage fundraising.
We also provide visibility and access to our active discussions with founders. This includes upcoming portfolio rounds and all new deals. We’re scaling up an approach that has already worked to deliver diverse syndicates of early stage investors.
Kyle Doerksen, founder of Future Motion (makers of Onewheel), inspired us to look for approaches that “sneak in the (climate) benefits.” Products and services can be faster, better, cheaper and more fun and still be good for the planet. So we were super excited when the Proto team shared an idea for Swag — the Third Sphere Patch!
We love the patch because it immediately upgrades any item of clothing and confers the right to help out founders re-imagining our future world. Also, we can easily get them to many people — they’re cheaper with lower GHG to ship, and we can carry a few with us for emergency giveaways. You can upgrade your own clothing (or check out Thrilling to pick something vintage and low footprint). We hope it reminds us of all the ways to sneak in the benefits.
How We Can Work Together
Third Sphere has come a long way since our pilot fund. The platform includes various services to support the teams in our portfolio from coaching to connections. Then there is capital to make early stage venture as well as non-dilutive credit investments. And we work with affiliates to provide additional support in areas like business development and fundraising for emerging assets.
This also means many more ways to work together. Below we describe how we’ll work with founders and investors. Soon we’ll share details of our Fellowship program that currently includes students from Stanford, Berkeley and University of Chicago. We’re also expanding our partners with specific experts like Proto (who produced the Third Sphere brand). And we’ll be announcing multiple new full-time roles.
Joining our Synchronicity platform
We have a beta version up and running, so we’re starting to work with portfolio founders and a small group of LPs. We will open this up further in the coming weeks. If you’d like to join us, please apply (there are a few fields and just 2 questions).
Capital for pre-seed and seed stage founders
We’ll announce our newest VC fund soon. It’s never too early to talk about an investment: 75% of the teams we invest in don’t have paying customers when we invest. We’ve partnered with 100+ founding teams and are always eager to meet startups as they are getting started. If you’ve identified a planetary scale problem and an approach that might be rapidly scaled, we’d love to meet you.
Third Sphere Credit for financing your assets
Transforming Climate Systems is an inherently asset intensive proposition and it requires the full spectrum of capital markets solutions to scale. Financing for early hardware startups (a favorite here at Third Sphere) remains particularly underserved and this realization led us to launch our dedicated Credit strategy in 2019. Through our Credit arm, distinct but complementary to our VC investments, we lend and create custom asset finance structures like project holding companies and equipment leasing vehicles. These investments are designed to minimize dilution and preserve ownership for your team while accelerating growth and impact.
The early stage Credit business has materially changed in the last 12 months — credit has gone from “he who should not be named” to routine part of fundraising conversation. We believe the Asset-Based nature of our loans (as opposed to traditional Venture Debt which is VC equity and momentum based) is both well suited to the current market environment and better aligned with a capital structure thats built for scale. If you have hardware assets, project based deployments or B2B contracts, we’d love to meet you.
Perl Street & Urban Gateway
China is responsible for 28% of global emissions and is home to nearly 19% of the world’s population. For many founders, this means that having a global impact also means working with the Chinese people. In 2019 Third Sphere began working with Urban Gateway to explore how founders could grow their impact in China. Today Urban Gateway has partnered with startup founders in areas like space heating and cooling, sustainable real estate development, virtual power plants as well as waste to energy.
From energy to finance, the next generation of global systems tend to be distributed. In 2018, Third Sphere began working with some of our founders to understand how we might better help them to fund emerging, distributed assets. Perl Street transforms under-banked hardware companies into bankable deployments with structures formerly reserved for billion-dollar project finance transactions.
Join or follow along
Ready to join us? Please tell us a bit about yourself. Want to get to know us a bit more before you join? You can learn more about us on www.ThirdSphere.com. And please follow along here on Medium, LinkedIn or Twitter.