Drawdown Fund wants its compensation tied to impact

The climate tech investor believes that you don’t change behaviors unless you change incentives.

As climate tech becomes a hot investment in the venture world, Drawdown Fund wants to make a more significant impact.

The Park City, Utah-based fund ties its compensation to its impact and hopes that it keeps itself and its portfolio companies accountable.

Erik Snyder, general partner, co-founder and chief executive officer at Drawdown Fund, said when it invests in climate solutions, it ties compensation to the equivalent of carbon sequestered for emissions. As explained by the University of California, Davis, carbon sequestration is the process of preventing carbon dioxide from entering the Earth’s atmosphere.

“We’re in a world where as investors, we were getting frustrated by some of the greenwashing or sustainable washing,” Snyder said. “We have a belief that you don’t change behaviors unless you change incentives.”

Drawdown drew its inspiration from a book edited by firm co-founder Paul Hawken called Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming. Published in 2017, Amazon ranks it 11th among bestsellers in the category of environmental economics.

Founded in 2018, Drawdown invests in companies looking to scale around food and agriculture, energy and sustainable cities. The firm led the $100 million Series D funding for clean energy tech provider Arcadia. It co-led that investment with Tiger Global.

Drawdown is still in the process of fundraising, but has so far invested in two companies. Other than Arcadia, it also backed Mori, a company that makes technology to help prevent food waste, as its first investment. The $16 million Series B funding was led by Drawdown.

The fund also sits down with its portfolio companies to set impact metrics. If by the time of Drawdown’s exit these goals are not met, the fund will deploy its carried interest philanthropically to reach those impact targets.

The National Venture Capital Association and PitchBook said in its Q2 2021 Venture Monitor that investment into climate tech in the US reached $12.7 billion in 2020.

Snyder said he hopes that by putting priority on impact, the fund can make more of a difference towards meeting carbon neutralization goals. And while other funds or companies invest in green technologies for different intentions, it is crucial that the sector gets the much-needed capital infusion it needs to reverse climate change.

“At the macro level, there’s $27.4 trillion needed for the rest of the world for climate solutions,” Snyder said. “That number is just so mind-bogglingly large that regardless of someone’s intention or authenticity, we need capital in that space.”

He added that more entrepreneurs and investors than ever before are more genuinely pushing for change and want to solve climate issues.

Drawdown has seen greater interest in climate tech, not just from VCs but also from LPs. Snyder said there’s been a “palpable reception” from LPs who want to encourage growth in the space. He likened it to a growing awareness that climate change is an actual threat.

Clarification: After the above post was published, Drawdown reached out and said it is more accurate to say that at the time of a portfolio company’s exit, if the impact metrics are not met, the fund will deploy its carried interest philanthropically. In other words, the firm said they do not take the percentage of the carry comp and reinvest for potential future gains in another company, but instead provide it to a philanthropy that is focused on their climate-change objectives.