#123: 😣 Primer: How to read a #%@! investor term sheet
Plus, $1.8T market for climate adaptation finance, new $1B climate tech fund, test on psychological safety, and knowing if you're a "stuck leader"
Good morning, folks.
Today I’ll cover these 4 nuggets below — as delicious as arriving in NYC today for three full days of Climate Week inspiration and connecting with my peeps.
Climate Startups & Investment:
#1 — 💰 My two favorite climate tech headlines this week
#2 — 😣 Primer: How to read a #%@! term sheet
Productivity & Leadership:
#3 — 🆓 Test: Are you a “stuck or unstuck” leader?
#4 — 🏆 The key to Google’s most successful teams: Psychological safety
Onward and upward,
Chris
P.S. Want more? Read 120+ prior newsletter issues here.
#1 — 💰 My two favorite climate tech headlines this week
First:
Climate Tech Veterans Launch Climate Resilience Venture
My pals Emilie Mazzacurati and Katie MacDonald just launched Tailwind, an innovation studio focused on accelerating the deployment of adaptation and resilience solutions.
Why is this important?
Globally, adaptation finance makes up less than 10% of climate finance flows1, with an estimated market opportunity of over $1.8 trillion by 2030. (source)
Also, repeat after me: Investing in adaptation is not the same as waving a white flag to surrender to a dark world damned by climate disasters.
OK, sorry that was a lot to repeat.
The point is this: We CAN invest in all of these simultaneously — reducing emissions, capturing carbon, and adapting to a hotter future.
I also like this launch because of this illustration: “Teamwork makes the dream work.” Cofounders with different perspectives bring more diverse networks and toolkits to a venture than those who look and think the same.
Emilie built and sold Four Twenty Seven, a startup that pioneered the use of climate data in financial decisions, to Moody's Corporation.
Katie was the Head of Tech to Market at NYSERDA, an innovative state government program.
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Second:
Tom Steyer Launches New $1 Billion Climate Investment Fund
This is a continuation of the trend for bigger, later-stage funds to invest in more mature companies.
This is a sign of the evolution of climate tech, a scaling up of early-stage VC-backed climate solutions to scale, often as infrastructure.
Why is this important?
The fund can write big checks: From $10M to $100M per company.
They will invest in software and hardware. We need both, and often they’re integrated within the same solution.
Their phrasing of the investment rationale is perfect: Record heat waves, wildfires, and severe storms are the perfect backdrop to make climate tech a “generational investing opportunity, the exact opposite of being concessionary.”
#2 — 😣 How to read a #%@! term sheet
If you struggle to understand what an investor's term sheet means, here's a great primer to break it down.
Shout out to Ming Zhao for this. And to her Twitter banner and bio, which are entertaining, too.
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She unpacks all these terms in red:
Here are some of her wisdom bombs:
Valuation is always the 1st (& only) thing people talk about.
But other subtle clauses can and do foil a high valuation many times over to sour deal economics.
These include:
- Liquidation preference
- Participation rights
- Voting rights
- Conversion
- Anti-dilution
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Another more subtle clause linked to valuation is the "option pool" (newly issued for future hires).
2 things to define:
- size (typically 10-15%)
- whether it comes out of the "pre-investment cap table" (dilutes only builders) or "post-investment" (dilutes builders + investors).
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Board seats
Note: #1 clause leading to founder loss of control — choose your lead investor carefully b/c they choose your Board additions!
Here's what Boards typically vote on:
- hiring/firing senior execs (can vote you out!)
- exec comp
#3 — 🆓 Test: Are you a “stuck or unstuck” leader?
Take a look at this table.
Which column describes you best?
#4 — 🏆 The key to Google’s most successful teams: Psychological safety
Research suggests that psychological safety is one of the greatest predictors of team success.
What score would our organization receive on this metric?
Take a test here, via psychological safety expert and Harvard professor Amy C. Edmondson:
Here's more from @Inc magazine:
After Years of Research, Google Discovered the Secret Weapon to Building a Great Team. It's a Lesson in Emotional Intelligence.
Great companies are made up of great teams. It's one thing to hire a bunch of rock stars, but it's a completely different thing to get those stars to work together.
That's why a few years ago, Google went on a mission: discover how to build the perfect team.
The study was code-named "Project Aristotle," a tribute to the famous philosopher's belief that it's possible to have a whole that is greater than the sum of its parts. Studying 180 teams, the researchers interviewed hundreds of executives, team leads, and team members.
After poring through the data, the research team isolated specific factors that influenced team effectiveness. But they clearly ranked one factor as most important:
Psychological safety.
Google describes it this way:
"Psychological safety refers to an individual's perception of the consequences of taking an interpersonal risk or a belief that a team is safe for risk-taking in the face of being seen as ignorant, incompetent, negative, or disruptive. In a team with high psychological safety, teammates feel safe to take risks around their team members. They feel confident that no one on the team will embarrass or punish anyone else for admitting a mistake, asking a question, or offering a new idea."
📓 Two final notes.
(1) Tell a friend
If you enjoyed this newsletter, I’d really appreciate it if you sent it to a friend (or 10 of them). 🙏
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(2) My live course on fundraising for startups (deadline Sept. 22)
If you want to learn how to raise capital for your climate tech startup, then join a short course I’m teaching in late September. It’s taught live, online, with a cohort of peers.
That’s all, y’all.
Make it a great week, because it’s usually a choice.
Cheers,
Chris
Founder: Entrepreneurs for Impact
Join our climate CEO PEER GROUP (#1 in North America)
Join my climate tech startup funding LIVE COURSE (late September)
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(As evidenced by these photos, I’m an actual human. Not an AI. 🤫 I promise.)
