Alternatives to VC in ClimateTech - Erin Davis of Enduring Planet

In today's episode, I speak to Erin Davis, co-founder, and COO of Enduring Planet, which is a revenue-based financing platform for climate tech startups. The platform allows climate tech companies to raise funding without dilution, without giving away equity, and without any personal guarantees and collateral.

EPISODE HIGHLIGHTS

• [00:45] Erin’s Personal Journey
• [06:49] What Enduring Planet is all about
• [09:13] How Enduring Planet lets founders do what they do best
• [11:13] Enduring Planet's Value Proposition to Investors
• [13:57] How Enduring Planet implements diversity & inclusion into their product
• [15:07] Key requirements for founders to get funding from Enduring Planet
• [17:21] Erin's take on the Macro Environment
• [18:54] Types of companies Enduring Planet invests in
• [20:08] Biggest challenges Erin faced as a first-time founder
• [21:24] Advice for founders in the current climate tech environment
• [22:56] Changes in the fundraising environment
• [24:36] Enduring Planet's funding framework
• [26:21] Enduring Planet's 10-year vision

KEY LESSONS & QUOTES

• "I'm not really scared of failing and if I did, I know I'd land on my feet & find something else to do" [06:27]
• "There's fewer impact in climate-focused investments that are a fixed income return" [11:39]
• "As a first-time founder, don't get bogged down in too many details. Done is better than perfect" [20:34]
• "Ultimately, investors invest in people. If you have that passion & drive to move something forward, they're willing to trust that." [21:14]

Chapters

• 0:45 Erin’s Personal Journey
• 6:49 What Enduring Planet is all about
• 9:13 How Enduring Planet lets founders do what they do best
• 11:13 Enduring Planet's Value Proposition to Investors
• 13:57 How Enduring Planet implements diversity & inclusion into their product
• 15:07 Key requirements for founders to get funding from Enduring Planet
• 17:21 Erin's take on the Macro Environment
• 18:54 Types of companies Enduring Planet invests in
• 20:08 Biggest challenges Erin faced as a first-time founder
• 21:24 Advice for founders in the current climate tech environment
• 22:56 Changes in the fundraising environment
• 24:36 Enduring Planet's funding framework
• 26:21 Enduring Planet's 10-year vision

Transcript

Maiko: 0:00

In today's episode, I speak to Erin Davis, co-founder and COO of Enduring Planet, which is a revenue based financing platform for climate tech startups. The platform allows climate tech companies to raise funding without dilution, without giving away equity and without any personal guarantees and collateral. And this model of funding has actually been quite successful already, especially in eCommerce and software as a service startups, but I think Enduring Planet, as far as I'm aware, brings the first ones to bring this model into climate tech and funding the technologies and solutions that will hopefully save us. So Erin, thanks very much for joining me and making the time today.

Erin: 0:42

Yeah. Thank you for having me.

Maiko: 0:44

Thanks very much. So let's start with your own personal journey. Give us a bit of an introduction to yourself and how you got to work on this problem at Enduring Planet.

Erin: 0:53

When I was in college, I really thought I wanted to be a doctor, and I think that just stemmed from wanting to help people in some way. I thought it was like a really direct way of helping people. So I was pre-med and then I went and worked at Dana Farber Cancer Institute, working on brain tumor therapies and found myself more spending my volunteer time in the ESL department, meeting with international doctors and all these really smart researchers. And I just realized, medicine doesn't have to be the only way to help people. So I did a little soul searching and decided to go back to school for microfinance. I thought that was just another really interesting way to help low income people with like a pragmatic business solution. I loved like the model of Kiva, where you give 50 bucks and then it's repaid and then you can give it again. And I just thought that was so smart. So I went to American University, started the master's in international development and took every class I could on microfinance and then realized that like, I can't do microfinance without knowing any finance, which I had none, no background in, I was a Spanish major in undergrad, so like really had nothing there. So I decided to apply to the dual degree program at AU and get my MBA. And from there I did a few internships and fellowships at different microfinance institutions, business development in Tonga. I got to spend a summer there, which was amazing. And then I worked first as an internship and then post grad, took a job there where I worked in the Financial Innovation and Social Enterprise Department. So it was like expanding products for their microfinance customers. So we manage an off grid solar distribution company in Uganda, we were also developing like an accelerator, but it was challenging. And, I was working very closely with my boss there at the time and we decided to leave Finca and start a new company called Social Investment Managers and Advisors, and that's where I had spent about six years launching three different funds, raised about 200 million from impact investors and invested in all types of off grid, solar and financial access entrepreneurs. All in emerging markets, largely Sub-Saharan Africa and South Asia. And during that time, as I was just telling you, I was fundraising all the time. And so was trying to get some money from the energy access program at Facebook where my co-founder Dimitri Grenson was working. but they ultimately never invested in us, but we always kind of stayed in touch. I always admired the work that he did, like super catalytic work in helping funds like us though, not our fund, layer in more risk-averse money. So I was on, maternity leave actually last year when Dimitri reached out saying, he is looking for a co-founder with finance and investment experience and just said, I think that sounds like me I'm ready for a change. So, we talked over the next several months as I had just a little newborn on my chest. sometimes, I needed to feed the baby and he's like, oh, you can just like, turn off your video and breastfeed if you want, you don't get that everywhere. So it just felt like I could take the plunge and start something new at Enduring Planet without feeling all this like pressure also being a new mom.

Maiko: 4:42

Well, especially in finance, I mean, even in impact finance, I assume things are usually done in a less accommodating way as what you just described, right?

Erin: 4:51

Yeah. I mean, SEMA had a culture of just work, work, work, work, work, and I love to work hard and passionate about the work that I do and feel so lucky to do the work that I do. So it's motivating every day, but at the same time, because SEMA was working in emerging markets, I was taking calls with Korea at 11:00 PM at night, and then having to get up at 6:00 AM and take calls with Kenya. And it was just kind of taking a toll on, my health and my life. And it just didn't feel like the right thing anymore. And I felt like sad about I had helped build this like amazing company. And I, loved everybody that worked there, but it just didn't feel like it was gonna work for me as a new mom. And I think when you are a new parent, your priorities become very clear all of a sudden, you know, it's not just about you anymore. And so you just know what you can do and not do.

Maiko: 5:47

Got it. I find this quite impressive, especially in that situation to decide to become a co-founder again, right? Like it's never gonna be a walk in a park for sure. As much as you can try to make it balanced and about self-care and so on your small team, right?

Erin: 6:01

Yeah.

Maiko: 6:02

Was that a fear or concern? Uh, in the beginning or.

Erin: 6:06

Yeah. I mean, it was a huge leap of faith. I have a really supportive husband and we talked about it every day and made the decision together. It was just kind of a crazy decision, but I think ultimately I believe in myself, I believed in the concepts that we were putting together and just had a lot of trust in Dimitri. I'm not really scared of failing. If we did fail, I know I would land on my feet and find something else to do. And I could always go get in a regular office job.

Maiko: 6:38

Yeah, love it. Dimitri got a co-founder now with amazing experience, I mean, you've been fundraising these big funds, and I assume that's what you're focused on now with Enduring Planet as well, but let's give people an overview of what Enduring Planet is how does it actually work? And then what's your role in Enduring Planet? What's your focus?

Erin: 6:56

Yeah, so Enduring Planet is a FinTech for the new climate economy. As you mentioned, we're rolling out a first product, which is revenue-based financing for early stage climate entrepreneurs. But our vision is that we offer many products like billions of dollars of lending that needs to happen and flow into this sector to address climate change and, you know, the two degrees, sea target. We define new climate economy very broadly. So any company that is making a part of the economy, more climate friendly, we will look into. So that could be like a smart plumbing service or EV leases and compost companies. Right now, so we're looking for companies that are post revenue. They have some track record of revenue that we can underwrite upon and then project forwards. And we look for, minimum gross margins, minimum growth of revenue, month over month and year over year. Right now we're focused just in the us, but we definitely hope to expand more broadly eventually. and that's on the, what we look for side of things. And then on the product side of things, we're offering loans of 100-500K for two to three years on average, two years. And we take a percent of gross top line receipts monthly. So what's incredible about our model that I really love is that from an underwriting perspective, I don't have to wait for the company to send me financials and manipulate things and do all this. We plug in directly through an API, into accounting, banking, and commerce, and can access that information on a real time basis. Do our underwriting. We do take projections and a deck from the company once we decide to move forward. But we're really targeting to have like this 30 day turnaround where we can from application date to funding 30 days, that's our goal. And we're not always meeting it, but we're trying really hard.

Maiko: 9:13

Yeah. Then you were on a panel on a Twitter space that I was cohosting earlier this week. And I think you spoke also about the target of limiting their necessary interaction and meetings with founders to a certain time so that you basically let founders do what they do best and actually run their company rather than like get them into meetings. What's your objective there. And how does it work from a founder experience?

Erin: 9:34

Yeah. I mean, the ethos of our company is to be very founder friendly. I've been on the receiving end of two year long diligence processes, and it's very frustrating as a founder to continually be in meetings. And obviously you need to be transparent and you need to give investors the information they need to make a decision, but doing a revenue based product, we feel comfortable underwriting on the basis of some basic financial hurdles and your historic revenue and projecting that forward. So our goal is to really not take more than three hours of a founder's time on calls and emails Sometimes this can mean we don't get the offer right because we don't totally see their full pipeline of contracts like coming forward. But we're also like at this stage open to a little bit of negotiation, or like if a founder has a really good case for why they think the offer should change slightly. We're willing to consider it, because right now we're at the proof of concept stage. So we're proving that founders want this capital. We're proving that we can use this FinTech stack to mitigate risk and to underwrite appropriately. And ultimately we want this proof of concept to work so that we can scale it up much larger. So we've launched a five and a half million dollar fund back in April and are actively making loans. We've made two so far, but we're really hoping to scale this up in the next year and bring in more institutional capital.

Maiko: 11:13

And what's the value proposition to the investors again for somebody like me, that hasn't been in finance of a fund like this, versus for example, a VC fund or private equity fund or any other financial product that your investors could be investing in instead.

Erin: 11:29

So from the fund perspective, we're offering a fixed income structure. So investors can earn a 10% coupon annually, and so I think there's fewer impact in climate-focused investments that are a fixed income return. So that's like just the comparison between venture. Another thing is in the structure of the fund itself, we offer first-loss protection. So we have a tranche underneath the note holders, and so any losses that we experience would be taken out of that tranche first and then our model. Is we account for defaults in a pretty high level default. So from an investor perspective, there's a decent amount of risk protection. And I think the final piece is the impact piece. It's my background in impact investing. And so I was very clear that we needed an impact framework. We needed to be very clear about the metrics for. Reporting and that investors need access to that information, not just the financial side of things. And so I think that really spoke to our investors who decided to invest. They felt confident in the framework that we put together, which is essentially based on the SDGs, but you know, the SDGs need a little bit of massaging and modification. So we did take some liberties, but essentially every company that we work with. Reports on two indicators that contribute to a sustainable development goal. So this looks different for every company because we invest so broadly across the spectrum. But essentially, investors understand that. They understand that climate impacts every area, and so not a problem for them. We do report on other kind of portfolio wide metrics as well. And this goes back to what speaks to investors is we also have a diversity equity and inclusion lens. So we're reporting to them, how many companies we've funded that have an underrepresented founder, underrepresented management, or are serving underserved communities. So I think the intersection of diversity inclusion and climate is also top of mind for impact investors as we make a more just climate transition.

Maiko: 13:57

Yeah, how do you actually approach the diversity and inclusion focus and implement that into your product to dedicate a efforts to attract companies founded by underrepresented founders, targeting underrepresented customers. How do you approach that?

Erin: 14:13

So, we do a lot of proactive outreach. So I'm part of, certain affinity groups like Women in Climate Tech, so I'll often remind people we're here and apply and post on their slack channels. And that kind of thing. I'll go to specific funds that are already have a portfolio of underrepresented founders, and I'll just reach out to them directly. It takes a little bit more rigor. You try to talk about it all the time to really encourage underrepresented founders to apply. And then the final thing that I'm really excited that we just launched, and you're gonna be a part of, is our scout program. And so I think having people out there who are constantly exposed to two founders and in very specific groups that we're not part of will be a huge help.

Maiko: 15:03

Yeah, excited for this as well once it's gets going. And in terms of the founders, let's cover a little bit more on the platform and then move on towards some advice you can give for founders as well, fundraising. But you talked broadly about the requirements for founders. I know the minimum requirement, generally, is that founders have 25 K recurring revenue. What other key requirements should founders have in mind to be able to fundraise from you?

Erin: 15:27

Yeah, so we are broadening the definition of revenue-based financing. Typically recurring, SAS revenue is how RBF lenders work. We are also willing to consider contracted services. So that's more on an annual recurring basis. We're willing to consider contracts that are assigned, but not yet in motion. So forward looking contract. So I just wanted to clarify on the recurring piece, at a minimum, we look for 25 K and then we dig into, okay, how are they creating that revenue? Where is it coming from? Like what percent is recurring? What percent is one-time? We also look for 35% gross margins, so you need to be able to accommodate the revenue share coming off the top on a monthly. We look for 30 to 50% year over year growth, although, we've made an exception for one company who has only been in business for 14 months. So there's certain exceptions that we're willing to make if the revenue and growth support it. the other key metric we look for is runway, and this goes back to how we can attract investors. they're like, well, what if you finance a company that's about to go out of business? And so we look for at least 12 months of runway, and this can be inclusive of our funding. That basically gets us through half of the loan. And if this company is really doing terrible, then like we're all in a bad place, but based on historic growth and what they have been doing, and no major indications of things changing, of course, there's this whole macro environment that's going on right now that we can't control. But I would say those are the top things we look for.

Maiko: 17:21

With the macro environment, do you see more of demand surging now? Because maybe certain VC funding options just dried down a bit and you've got the fund ready to deploy, right? So in theory, I assume options like yours, may be surging in demand now or how does it work?

Erin: 17:37

Yeah, for sure. I mean, we saw a flurry of different emails from different VCs saying, you know, get more runway now while you can. I was having this conversation with another founder about the environment right now, and obviously, I can't know for sure nobody has a crystal ball, but some of it does seem inflated. I think a lot of the risks are already factored in, so I'm just not sure if it's like a manufactured slowdown by VCs or, it's actually going to happen. I think as a founder, you can only just stay the course and somebody wanted to give us additional equity after our round closed. And we decided to take the money. They were super aligned investor as well, but just kinda speaks to the situation right now. So.

Maiko: 18:29

Yeah, absolutely. I'm having this conversation with loads of people now, we had a session with our founders as part of the impact hustlers community earlier, and everybody is talking about the environment right now, but yeah.

Erin: 18:40

I think it does work in our favor, the macro environment, because companies are looking for additional cash and we have cash on hand and ready to deploy.

Maiko: 18:50

Okay, that's a call to any founders listening to this, if you match the requirements. To that, I'd just like to ask one more question on the sweet spot for the types of companies that you invest in. I assume the types of companies that are very engineering, heavy that need a lot of money upfront to get to any sort of revenue. They are probably out of the equation for a while, until they may get their contracts going. And you said beyond that, you're relatively open minded in terms of what's included in climate tech, but is there any sort of sweet spot of the type of company that is the most suitable for this type of funding?

Erin: 19:23

Yeah, I think it goes back to the recurring or reoccurring nature of revenue. So that can mean. SAS contracted services, small hardware accompanied by a SAS product. So. An air quality widget that comes with a whole suite of software. So we're not taking major technology risk. We're not gonna be financing and novel technology, we'll save that for the experts. You have to have revenue traction already at least 12 to 24 months. So you have to have demonstrated some level of minimum viable product.

Maiko: 20:07

Got it. All right, let's move into a little bit of advice for founders. You already shared your opinion on the current funding environment, but you've founded two organizations as far as I can see, right? Enduring Planet, and then your previous company, which was SEMA. So on your journey of being a founder, what do you think was one of the hardest lessons that you had to learn? Any kind of things that were particularly difficult or challenging that first time founders listening to this should.

Erin: 20:34

I think not getting bogged down in too many details. I guess my sister used to have this magnet on the fridge and it said done and is better than perfect. So you are going to evolve so much from start to whenever that it almost doesn't matter if it's not exactly how you want it to be at that particular moment in time, because you'll look back a year, two years from now and you're gonna be like, why did I do that? You know, and things will evolve and change so much, so I think getting it done and keeping the forward momentum is really important. And I think ultimately investors invest in people and so if you have that passion, drive to move something forward, they're willing to trust that.

Maiko: 21:23

Got it, and then for the current environment, with the founders that you're working with, what would you recommend them to do? I mean, everybody's sharing this kind of email that Y-Combinator sent to their startups, like, prepare for and save as much as you can and Tessa, another founder who's here in London, founder of Olio, she's been talking about cockroach mode. And the idea of that is basically cockroach could survive a nuclear attack. You're basically trying to really go down into the basics. That'd be even more diligent with what you're spending your runway and things like that. Is that kind of the broad advice you would give as well? Or is that kind of any more nuance advice you would give to founders in this current environment, especially in climate tech?

Erin: 22:04

Quite frankly, it feels like everybody should watch what they spend at all times, but I agree, but it's just what else are you gonna do? You have to stay the course, and I think entrepreneurs that are successful are persistent and problem solvers. It can be really scary and it's a mental game sometimes more than anything. Like if you have a somewhat decent idea and you have common sense, I think it's really mental because you have to constantly remind yourself and remind your team you're doing a great job. You're gonna get there eventually. And I think that's why, you know, I said before, like I'm not really scared of failure, because like, I don't think I'm gonna fail, but if I do I'll land on my feet, figure something else out.

Maiko: 22:51

Well, you're, you're born entrepreneur with that mindset and that's the right mindset to have. Absolutely. Did you see any of the changes in the fundraising environment yourself as well? I think it sounds like if the fund was close a bit earlier, right? So it may not have affected you as much, but I assume you're already thinking about the next steps and how do you see the environment for yourself right now?

Erin: 23:11

No, we, we really haven't done a big push yet for the next fund. We're thinking about the structure still and have some really interesting options on the table, which I'm super excited about, but in terms of current investors. So I should clarify, we had a first close in April and we're having a second close at the end of July. So we're still open to taking investors. And so I. Nobody has really given us the reason that they're just uncertain about the future or how the macro environment is gonna play out. I think for us, we are targeting impact investors. And this is a very unique opportunity that doesn't come along their desk very often because of the fixed income nature. And a lot of investors want this portfolio exposure rather than trying to pick one project at a time. And also, they want exposure to early stage companies where they can be more impactful. And this is a way to do it because it takes a lot of time to underwrite a company, whether you're giving them a hundred K or a hundred million. And so everybody would wanna do the hundred million dollar deal. So this is a way for investors to efficiently use their capital to touch a broad portfolio of companies.

Maiko: 24:36

What's your thesis for the impact of the capital that you provide? Obviously, I mean, it's inherently impactful to be able to have capital to invest in the business. And if it's a business that's solving climate change in some way, or as part of the solution, that's kind of a logical step. But do you feel like to some degree then competing with VC money and basically just strip being an easier, better alternative to VC money? Or do you tend to be the top up additional capital, so founders will still get all the VC money they would've gotten anyways, but they just have a, this extra bit of capital that get them this much further. What's kind of the framework for you?

Erin: 25:14

Yeah, we see ourselves coming in where you need us. So we see us being complimentary to VC money, we can come in as part of a round. I didn't do a very good job of selling the main point of RBF, which is it's non-dilutive, and so you don't have to give up a portion of your ownership, which is really impactful for founders, but I would love to think that if they keep more of their company for themselves, they can give more to their employees rather than to VCs. But so that's one option we can compliment around. We can also come in between rounds to give fuel to the fire and have them get five more contracts or whatever it is right now, we're at a relatively small ticket size of under 500 K. So this can be more or less meaningful depending on the type of business. Everybody can use a few extra months of runway and really try to fuel that growth to get evaluation. That's better in a few months or a year.

Maiko: 26:20

Got it. One more question for you is if you think about 10 years from now, so we got to year 2032, how does the world look like if Enduring Planet succeeds?

Erin: 26:31

Oh, my goodness. Well, I always think about this in terms of how old my son will be. So I hope that it's a world where we see really vast change and we're not having to debate whether or not climate change is real, but it becomes a natural part. Of life and it makes business sense for people who only follow that logic to choose more climate friendly options. I think in 10 years, I hope my son is super proud of his investor. Mom, who has invested in hundreds of thousands of finite companies. I hope it's a world where kids can continue to be safe and go outside and play in water and do the things that the rest of us older folks have had the opportunity to do.

Maiko: 27:22

Absolutely, it's a compelling vision. And if you are part of building that future and fighting the climate crisis, check out Enduring Planet and eventually raise some funding through them. Thanks Erin, for joining me today, really enjoyed the conversation and hope to have you back at some point.

Erin: 27:37

Thank you so much for having me.