The world after capital with Albert Wenger
FEBRUARY 22ND, 2021
Interviewee: Albert Wenger
Background: Managing Partner at Union Square Ventures
Topic: Fighting the climate crisis
Listen: On the web, on Apple, on Spotify, RSS
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“Whenever we’ve done anything successfully it’s taken both entrepreneurial initiative and government getting things right. We shouldn’t be denigrating the other side. We should be figuring out the most effective way to work together to save humanity.” — Albert Wenger
Earlier this year the venture capital firm Union Square Ventures announced a new $162 million fund to invest in “companies and projects that provide mitigation for or adaptation to the climate crisis,” as the announcement post by USV partner Albert Wenger explained.
The announcement was big news. USV is one of the most successful VC firms ever, with Twitter, Etsy, Stripe, Coinbase, Duolingo, Twilio, and (full disclosure) Kickstarter, among many others, in their early-stage investment portfolio.
The entry of a top-tier VC firm like USV into the climate crisis — and similar moves by super-angels Chris Sacca and Chamath Palihapitaya — marks a shift in humanity’s response to climate change. This is what _The Uninhabitable Earth_author David Wallace-Wells recently called “climate self-interest” in an article sharing reasons for climate optimism:
“The second source of good news is the arrival on the global stage of climate self-interest. By this I don’t mean the profiteering logic of BlackRock, which opportunistically announced some half-hearted climate commitments last year, but rather the growing consensus in almost every part of the globe, and at almost every level of society and governance, that the world will be made better through decarbonization. A decade ago, many of the more ruthless capitalists to analyze that project deemed it too expensive to undertake. Today, it suddenly appears almost too good a deal to pass up.”
Albert Wenger, the VC at Union Square who is leading their climate efforts, joins us today on the Ideaspace. I’ve known Albert for more than a decade. USV was an early funder of Kickstarter, and Albert and I have invested in climate change-related startups and worked on climate activism projects together. Albert is also the author of a fascinating book — especially for a VC — called World After Capital that’s published free on the web.
My conversation with Albert was eye-opening and a must for anyone concerned about climate change, which damn well better be all of us. Listen on the web, on Apple, or on Spotify, or read below for Albert’s views on how bad things are and how bad they will get; why the solutions are better than we think; and a compelling and original vision for a world after capital.
YANCEY: I want to start by quoting from the blog post announcing the new Climate Fund. In it you say: “The USV Climate Fund is a straight up venture fund. We believe that decarbonizing the economy and dealing with past emissions and their consequences offers many opportunities for building important new companies that can produce venture type returns.” Why is “a straight up venture fund” important to say?
ALBERT: Some people are raising impact funds. We’re not an impact fund firm. We believe that the things we’ve invested in have impact, but we also think that at the early stage it’s very hard to predict what impact something will have. I remember well when we first invested in Twitter everybody was like, “Oh who cares about what somebody else had for lunch?” Later some of the same people were saying, “Twitter’s destroying democracy — how dare you fund this thing?” Impact is very hard to predict. Take the first Climate Fund investment SilviaTerra. They measure forest from space. This could be a huge unlock for getting people paid for what those forests contribute to the ecosystem. It might have a massive effect. It also might not work at all. For us at our stage to try to quantify impact just feels wrong. It feels like making stuff up and we don’t like to make stuff up.
YANCEY: Do you see a connection between the level of impact on carbon drawdown or climate mitigation and potential revenue? Do you imagine those things are correlated?
ALBERT: Absolutely. I think the very largest successes in terms of emissions reductions and drawdown will also be among the largest commercial successes. Some of those things will not be commercial. They’ll be done with public investments. But yes I do think so. It’s already happening to a degree. Look at the stock market. Tesla’s stock is way, way up. And it’s not just Tesla, which is a specific case on its own, but if you look at NextEra, which is a renewable energy producer, their stock is way up. People are recognizing that this isn’t somehow optional. This is no longer a question of will this happen, this is how quickly will it happen. The consensus now is it’ll happen more quickly, thankfully, than people might have thought even a year ago.
YANCEY: Happening more quickly meaning a systemic response?
ALBERT: This crisis is an existential crisis for humanity and it’s not going to get solved by entrepreneurs alone. It requires systemic changes which require regulatory changes. But conversely, it’s also not just going to get solved by the stroke of a regulatory pen. It takes both. For some reason we’ve come to this point where many people feel the need to take an either-or stance. The need to denigrate the other side and say they’re not important and maybe doing more harm than good. You get a lot of people on the entrepreneur and VC side who say government is terrible, it should get out of the way. You also get a lot of people saying entrepreneurs like Elon Musk are doing more harm than good and we should just let government do it. It’s silly. Of course it’s going to take both. It always does. Whenever we’ve done anything successfully it’s taken both entrepreneurial initiative and government getting things right. A classic example is mobility and the car. It took entrepreneurs to build cars, but it took government to say we’re going to build roads, we’re going to agree on some rules like we’re all driving on one side of the road. That’s regulation. That’s not something some entrepreneur came up with. History says it’s going to take both. We shouldn’t be denigrating the other side. We should be figuring out the most effective way to work together to save humanity.
YANCEY: Do you feel like saying “this is a straight-up venture fund” is different than how funding for climate projects has been thought about before?
ALBERT: Yes. We definitely want to signal that lots of capital should be unleashed onto this because it’s a straight-up opportunity. You don’t need to have a charitable or impact angle. There’s a huge amount of capital in the world total and part of what we’re trying to signal is that if you’re a fiduciary of capital and you’re not investing in this opportunity, you are missing out. Susan [Danziger, Albert’s wife] and I have also funded a bunch of divestment initiatives at different universities including at Harvard where several new overseers have been elected on an independently nominated slate specifically around the idea of pushing divestment. It’s clear at this point that fossil fuel portfolios are performing terribly and will continue to perform terribly. Conversely, this is where dollars should flow. So yes we do want to send a very clear signal. If you are responsible for a pension fund, if you’re responsible for university endowment, if you’re responsible for a large mutual fund, you should be actively investing in this.
YANCEY: Were the conversations with potential LPs for this fund different for other USV funds? Was this a harder or an easier sell?
ALBERT: We did a good job bringing our investors along on a journey. We first started talking to our investors about climate in Fall 2019 in a climate presentation at our annual meeting that tried to make two points. The first point was that there’s been way more progress on potential solutions than people have generally heard. For example there’s been huge progress in solar and batteries. Over the last ten years they’ve gotten better by an order of magnitude, a factor of 10. The second point was to tell people this is much worse than you think. We do this thing where we asked people to estimate how many Hiroshima-sized nuclear bombs of excess heat we’re adding to the atmosphere above the pre-industrial baseline. We do this in real time, and we give people options from one a year to one a second. You put this out to a room of very intelligent people and the answer will center somewhere around one Hiroshima-sized bomb a day or so. When you tell people that it’s four per second, people are just floored at the scale of the problem. We did that in 2019, then made some investments and started to talk about those investments. When we went out to raise the Climate Fund after Labor Day of 2020, people knew it was coming. People knew why we were doing it. It went about as well as these things can go.
YANCEY: In the thesis announcement you write: “Mitigation is working on the causes of the climate crisis through emissions reduction or drawdown and greenhouse gases adaptation is working on the consequences of the climate crisis such as increased risk of crop failure. Adaptation is part of our thesis in recognition of the climate crisis is not some distant future event but rather playing out in the here and now.” So what’s the here and now in terms of climate change?
ALBERT: I grew up in a part of Germany where a 95 degree day was hot enough that we would cancel school when I was growing up. Now they have 110 degree weeks. Parts of India get so hot that you can’t actually survive outdoors now and we’re still in the early phase of this process. We need to obviously invest in mitigation. That’s a crucial priority. But we’re no longer in a situation where we can just ignore the need for adaptation. Indoor farming is a great example. We need to build a lot more indoor farming because it’s climate controlled and has guaranteed yield. We cannot be as dependent as we are on natural rainfall and a natural temperature. There are other benefits to indoor farming. You can grow things right next to where they’re consumed, you have less transportation, and so forth. Ultimately you have much denser use so we can give some of the land that we’re currently using for agriculture back to wildlife. Use that land for drawdown, plant a lot of trees, for example. But it’s very important for people to recognize — and I think Greta Thornburg deserves great credit here — that the house is on fire already. This is not a house that may be on fire at some point in the future. The house is already on fire. We need to act accordingly.
YANCEY: You’re a venture capitalist who also wrote a book called World After Capital. In it you write: “Prices are powerful because they efficiently aggregate information about consumer preferences and producer capabilities, but not everything can be priced. And increasingly, the things that cannot be priced are becoming more important than those that can. For example the benefits of space exploration, the cost of the climate crisis, or an individual’s sense of purpose.” Is pricing the climate part of this project? How do you consider the pricing challenge?
ALBERT: We can obviously put a price on carbon, and we should be doing that. There’s momentum building for that in part because companies are now voluntarily paying much higher sums per ton of CO2 than they have ever in the past. But when I say there can’t be a price for the climate crisis, what I mean is the total amount of attention that needs to be devoted to fighting this. There’s no price for that because it’s such an extreme event. We’re looking at a potential extinction event for humanity. I’m not saying that in any sort of exaggerated way. The physics of this are such that it may make the planet uninhabitable for humans. Period. End of story. A few of us could survive in some way but it wouldn’t be pretty. The way I sometimes describe this is through what I call the alien invasion analogy. As I mentioned earlier, we’re adding roughly four Hiroshima-sized nuclear bombs of excess heat to the atmosphere every second. If you had alien spaceships hovering above earth and dropping four Hiroshima-sized nuclear bombs in the atmosphere every second we would literally drop everything we’re doing. We would absolutely be like the movie Independence Day: “Oh my god, they’re trying to kill us by overheating the planet. We have to shoot the spaceship out of orbit.” But because it’s not visible there’s no reaction of any kind.
YANCEY: You also write in World After Capital: “Think of the world as divided into an economic sphere where prices exist and a non-economic one. Market-based allocation of attention can only succeed in the former, and to the extent that there are insufficient counterweights, will do so at the detriment of attention allocated to the non-economic sphere. Think of the high earning parent who doesn’t spend enough time with their children or the legions of science PhDs optimizing ad algorithms instead of working on the climate crisis.” Is there a need for some kind of post-price collective reasoning? Is the answer to use money to change where the incentives are?
ALBERT: A big thrust of the book is about how do we free people up so that they’re better in control of their attention. I don’t think that can be done with price signals. Take foundational research on the fundamentals of science. Who’s going to set a price for this and how do you use a price? It’s a completely futile effort. If anything we’re going to get those prices wrong and then people are working on the wrong things. It’s much more important that we basically compress the economic sphere. Contain it. In the book I make three proposals for how to do that. I call them Economic Freedom, Informational Freedom, and Psychological Freedom.
Start with Economic Freedom. One way to contain the economic sphere is by saying you don’t actually have to work to survive. That’s some form of universal basic income. If you want to move to a really cheap place and just think really hard about quantum physics you can go do so. Or if you want to go take care of your friends or your family or wounded animals. There’s a million things to do that are non-economic. Let’s enable people to go do that without them having to ask how they’re going to feed themselves.
Informational Freedom is: how do we control these crazy devices instead of being controlled by them? These things are designed to grab every smidgen of our attention. There’s simple hacks like I’ve set my phone to do-not-disturb. But we should be able to program these supercomputers fully instead of being programmed by them. That’s a lot of what Informational Freedom is about.
Psychological Freedom is: our brains didn’t evolve in the information environment that we live in now. Our brains evolved at a time when you saw a cat there was an actual cat. Now the internet can produce an infinity of cat pictures for you. The good news is that Psychological Freedom is something that we can work on on our own. Economic Freedom and Informational Freedom take some regulatory intervention and some consensus forming and community building, but Psychological Freedom is something each and every one of us can get started on today. That’s all about developing some kind of mindfulness practice.
YANCEY: You write about the need to transition from what you call a job loop to a knowledge loop. What’s that?
ALBERT: At the heart of the economic system is this job loop. You have a job so you can make money so you can buy goods and services which are made by other people who also have a job. That loop was a very good thing for quite some time. It worked. Combined with markets and entrepreneurial activity, it produced much of the material progress that we see around us. The problem is at this point too many people are caught up in it. Too many people work in what David Graeber called bullshit jobs. Too many people are fundamentally unhappy with their jobs, deeply frustrated. These jobs are not sources of fulfillment in their life. They’re not sources of joy. They’re a source of stress. You’re scheduled by some computer to show up here and if you don’t show up you lose your job.
Conversely this other loop is the knowledge loop, which has operated as long as humanity has been around, but we can use digital tools to turbocharge it. This is where you learn something, then you take the thing you learn to create something new, and then you share that. It’s wonderfully beautiful. There are all these people who learn a new skill, they learn how to play the guitar, and now they’ve made a song and they put it out there and somebody else hears that song and somebody else decides to create their own stuff too. We need to shift a lot of human attention that’s currently caught up in this job loop so that it can participate in the knowledge loop. That’s where these three freedoms come to play. They will let us exit the job loop.
If you looked at the US in 1750 or 1780, you would find that about 80% of the population spent their entire time doing agriculture to support 20% of the population doing other things. Today we’ve shrunk that sphere down to 3% of the population. I believe if we make this transition successfully, 100 years from now we’ll look back and think, “Oh my god, 80% of human attention was tied up in this economic sphere, and we’ve now shrunk it down to 10% or 5% of human attention.” It doesn’t mean it will go away. Agriculture didn’t go away. The economic sphere is not going to go away. There’ll be people having jobs and getting paid. It just won’t occupy as much of our attention as it does today.
YANCEY: You write: “One of my fundamental claims is there is enough capital in the world to meet everyone’s needs. If there’s plenty of slack today, capital is no longer the binding constraint for humanity going forward.” The kinds of constraints you talk about instead are knowledge, coordination, motivation, energy, things that are more fundamental. In this scenario, those things are being more actively created or contributed to?
ALBERT: Yes. I have an even more reductionist view — which obviously there’s a certain danger in in reductionism but I think it can be helpful. I think fundamentally humanity has gone through three different binding constraints. When we were foragers, it was food. Then under the agricultural age, it became land. And in the industrial age, it was capital. When I say capital I don’t mean financial capital. We don’t drive around in gold bars and dress ourselves in dollar bills. I mean physical capital: machines, infrastructure, buildings, and so forth. And when I say we have enough capital, what I mean is: just look at China. They can build entire cities in the space of a year. During COVID they built entire hospitals in the space of a couple of days. Or look at what Tesla is doing with the Gigafactories. We don’t have a shortage of the ability to make factories and to crank out stuff. So what’s the constraint now? I really think there’s just one constraint: attention. Are we paying attention to the things that matter or are we distracted into things that are ultimately counter to own personal interest and certainly our societal interest? We have enough capital and enough of things like energy. There’s enough sunlight hitting the earth every day to power our energy needs many times over. I’m also very confident that we’ll figure out how to make nuclear fusion work. It’s just a question of paying enough attention to the problem to solve it. But we won’t get there if we don’t really pay attention to the right things. To me this allocation of attention, both at the individual level and at the collective level, is the fundamental problem that we’re facing today.
YANCEY: What would you tell the average person that they should be doing in regards to climate change right now?
ALBERT: The first is, to the extent that you are financially well off, you should go make changes to your own lifestyle. Go get an electric vehicle. Go replace your propane or oil heating with a geothermal heat pump or just a regular heat pump, depending on where you live. There’s lots of individual actions. The second thing is become active in some kind of climate movement. There’s lots of climate movements. We now have a new administration that’s taking more aggressive steps but they’re still not aggressive enough relative to the size of the problem. So there’s an ongoing need for activism. That’s also something you can do without money. You can just show up. You can call your representatives. You can participate in protests that are absolutely needed. It’s also important to start by informing yourself by reading more and understanding better what the extent of it is. There are also places you can purchase offsets. The offset market is evolving very rapidly. There used to be a lot of low-quality offsets things that really didn’t move the needle. Now there are high-quality projects where there’s actual reforestation, for example, that wouldn’t be happening if it wasn’t paid. There’s lots and lots of things that you can do as an individual combined with lobbying for systemic change, which is required.
YANCEY: Thanks for taking the time to walk us through this. I wish you world-changing success.
ALBERT: Thank you. My pleasure.
LINKNOTES:
- Albert’s blog
- World After Capital website
- Follow Albert on Twitter
- USV Climate Change announcement
- David Wallace-Wells article “After Alarmism”
- Wren, a startup that provides a personal carbon offsetting subscription service (Albert and I are both investors and users)
- Listen to the interview on the web, on Apple, and on Spotify
