Episode 57 Transcript: Maybe DON'T take venture capital for your climate tech startup

Molly Wood Voice-Over:

Welcome to Everybody in the Pool, the podcast where we dive deep into the innovative solutions and the brilliant minds who are tackling the climate crisis head-on. I'm Molly Wood.

This week, we’re going to talk about how to build clean economy companies. Or at least ways to build clean economy companies that you might not realize exist. See, one thing I’ve learned since becoming involved in the world of venture capital and investing is that things like starting a company and getting funding and go to market strategies and customer acquisition are all these sort of bloodless sounding business words and phrases that are already pretty complicated, but everything is actually so much more complicated.

This dance of knowing or meeting the right people and getting introduced to customers and not just raising money but knowing what kind of money to raise or how much is too much or not enough and how it’s hard and lonely and terrifying to try to create something that sometimes has never existed before, especially when the stakes of the climate crisis are so high and you really want to make a difference. So along the way I keep meeting these people who are tactical, yes, but also are like spiders in the center of the web who make things happen, who help and explain and support and yes, fund. And today’s guest is one of them.

Jon Bonanno:

So my name is John Bonanno and I am the managing partner of Factor and we're an executive advisory for clean economy companies.

Molly Wood Voice-Over:

Jon started his career in telecom in the 90s, a pretty hot space at that time and his company was acquired.

Jon Bonanno:

And then I had offices in New York City and I was at an early morning meeting on the morning of 9 -11 downtown. And I had gotten out of the meeting at about 7 .45 a and I get a phone call from my CFO and he says, where are you? And I said, well I'm, I've just finished this damn meeting because it was with an ISP that was sort of not required meeting, but it happened anyways. And he said, someone's flown a plane into the towers. And I said, you know, having been from New York forever, I thought, it's just another New York Yankee has gotten a little crazy at the Atlantic city for the weekend and made a mistake and flew into the Hudson river or whatever. I got up to one Chase Plaza, which for the ones that remember, it's not called Chase Plaza anymore, but and it was definitely not a Cessna.

Molly Wood:

Yeah.

Jon Bonanno:

So standing right there about 200 yards away from the South Tower and seeing that unfold was pretty not pretty. It was extremely dramatic and terrible. The morning unfolded. I ran over to our office. I got people out of the office because we had been working overnight on a project and towers fell as I was standing in my office speaking with my brother on the phone. He was up at GE Capitol in Stanford, Connecticut.

Molly Wood:

Wow.

Jon Bonanno:

That was because the Verizon Tower was on building five. So all of a sudden all of lower Manhattan basically turned off and it was crazy dramatic, traumatic and very confusing because we weren't sure if it was, you know, Russian missile attack or what it was. I mean, there was literally no information except that this was going on. And fast forward, I had a very, very deep and solitary period.

to try and work some of that out. And I learned a lot during that period, learned a lot of skills for myself, personal healing and wellbeing, et cetera.

And also started to think to myself what made people so angry that they would do something so terrible. And this is all the while, while the Dick Cheney crew is sort of banging the gong, you know, we're gonna go do this stuff. And, you know, the former chairman of Halliburton, of course, is gonna go do what he did. And fabricate a lot of information that was untrue about, you know, I'm not saying Saddam Hussein was a nice person, but attacking Kuwait and ultimately the other wars that have unfolded over time, you just realize that the fossil economy is violent by nature and it's highly centralized and it's extremely chauvinistic.

And so there's always a better and less than.

fossil economy punishes the people that have the least because they can't move. And so if you have incredible air pollution that's causing a lot of death and sickness and poor food quality and poor water quality, et cetera, poor people don't have the means to move. And so pollution is punitive to the people that have the least. And fossil economy, whether it's burning coal or burning oil or extracting in a relatively, well, not relatively terrible way, pretty sloppy way, you have huge pollution outcomes.

And yet when they affect the people that have the least, their voice is the lowest and it gets the least attention. And that's been the history of oil and gas, sadly, and coal frankly. And so I decided in about 2002 that I needed to change my vocation. I needed to take my resources, take my personal energy and...create products and services that were superior to the fossil input products and services, delight the customer and not ask them to pay a premium.

Molly Wood Voice-Over:

So, yeah. That is one hell of an origin story. Jon took the resources from selling his company and started meeting with members of the American Council on Renewable Energy, some of the country’s foremost clean energy pioneers.

Jon Bonanno:

And so yeah, that's where I started is, you know, take my resources, take my skills, take my talents, build businesses, fund businesses, sit on boards, advise CEOs, create ecosystems, but we got to go really, really fast. I was very grateful to have the chance to work at one of the largest grantmakers.

at the time, to Clean Economy Entrepreneurs, which is called, it was called California Clean Energy Fund and it's now called New Energy Nexus.

Through that experience as a grant maker, I learned two very important things. The first thing is that whether you're a for -profit investor or you're a grant allocator, the first rule is don't make me look bad. The second rule is if you're a for -profit investor, make me alpha. That's what I care about. The grant maker wants impact. But the toolbox.

Molly Wood:

Mm -hmm.

Jon Bonanno:

to support entrepreneurs in that successful journey is very similar. And so I started to see very strong pattern recognition as a for -profit investor, as an operator of successful clean economy business, and then as a grantmaker about how this toolbox is key.

Molly Wood Voice-Over:

Then, during the pandemic the toolbox started to expand in some unexpected ways, like feelings.

Jon Bonanno:

I had the pleasure, as I said, of being at New Energy Nexus, a nonprofit doing grant making, intense pattern recognition, global footprint. And I just decided that we weren't doing enough support for our portfolio companies.

Molly Wood Voice-Over:

The organization started holding open office hours, where companies who’d gotten grants from the organization could come and get advice and help.

Jon Bonanno:

And that was wonderful and extremely busy. And then when COVID hit, we decided to throw it open to anyone that wanted help because the.

Molly Wood:

Hmm.

Jon Bonanno:

the noise was really incredible. If you remember sort of March of 2020, the world was ending and every entrepreneur that had gotten any sort of start was saying, you know, their hair is on fire, their customers have disappeared, their funders are, you know, completely unavailable, everyone was in panic mode. And so we got a ton of inbound.

And what I recognized from not only my personal experience as a CEO, but also mentoring and advising these, this enormous sum of CEOs was that emotional awareness and development is a key element to improve decisions. It does not guarantee success, but you are gonna have fear, you are gonna have anger, you are gonna be rageful, you're gonna be envious, you're gonna be jealous. There's gonna be a lot of, the pantone of emotions really expresses yourselves when you are the one in charge. And the buck really does stop with you.

Molly Wood:

Yeah. Yeah.

Jon Bonanno:

And you know that as running your own business, right? You have extreme highs, extreme lows. And having a console, you're having a confidant that is able to work with you in an aligned way over time is extremely helpful. It helped me in my operation role. I'm told that it helps the people that I work with now. So I built a practice around the toolbox.

Emotional awareness and development is the starting block. The next one is capital access, whether it's dilutive or non -dilutive. I mean, the Factor team has written over 180 grants. We've won over $850 million for our applicants. Bringing non -dilutive capital onto the balance sheet of either our portfolio companies or not our portfolio companies is just the most beautiful leverage because it's a marriage between the municipal grant maker, whether it's federal, state, county, whatever, they're saying, hey, we really want you to do this stuff. And they put out a big wide open call.

And then you happen to be able to do that stuff. And they say, here, we want to augment your work by giving you some cash. And we don't want anything for it except what we've asked you to do. And that kind of accelerated leverage is paramount to getting velocity that you can escape with.

Molly Wood:

Yeah. When did, to keep on our sort of specific strain, when did the open office project turn into factor? Was that during this, the COVID kind of everybody was calling you and you were like, all right, we're going to make this even more of a formal thing.

Jon Bonanno:

No, no, we worked through that. So I was the CXO of No Energy Nexus. And as a C -suite executive in a nonprofit, you want to be really, really careful about how much policy and politics you're involved with. And if you remember the summer of 2020, it was a pretty intense political period. And so I decided to take leave of absence during September to do a bunch of work around the national election and frankly a lot of local elections as well.

My single political issue is are you supporting climate solutions or not? You know, so yes, all the other things are important, but this is my issue and so that's the way I vote and my record reflects that. Sadly, one of the teams has decided for some period of time that it's not important.

The good news there is that now that it is so economically compelling, we're finding that team coming back to the table and saying, let's talk about it as low cost. Let's talk about it as hardening facilities or resilience. Let's talk about it as clean air. Let's talk about it as clean water. Yeah, all those are true too. All those are true too. But let's, I have a bias, which is, but let's also not do the other things that are creating those, exacerbating those situations. So.

Molly Wood:

Yeah, no question. Yep.

Jon Bonanno:

And nevertheless, I took a leave of absence from my full -time role at New Energy Nexus, a nonprofit. So we didn't have any compromise of, you know, who was doing what with what.

Molly Wood Voice-Over:

And in January of 2021, Jon left New Energy Nexus to advise companies full time and be what he calls a pollinator, until he decided to formalize things as Factor about a year ago and doubled down on getting companies funding, specifically through grants. More on that and what that landscape looks like after this quick break.

Molly Wood Voice-Over:

Welcome back to Everybody in the Pool. We’re talking with Jon Bonnano, the founder and CEO of Factor about the ecosystem of supporting clean energy companies. Now we’re going to talk about money and how grants are a key component of funding companies in this space.

Jon Bonanno:

And so I founded Factor and we've recognized some really interesting things, which is that the process of grant making is a commercialization tool that a lot of people don't recognize. So think about it this way. You go to Big Corporate.

Jon Bonanno:

and you say, hey, I'm a smallish company and I have something interesting that might help you do this. And immediately, corporate immune system kicks on and they say, really? Tell us more. No, no, no, we need an NDA. no, no, no, no, no. Let's have a couple meetings first and then we'll talk about it. There's all this cage match going on as soon as you do that. If you come to Big Corporate, or frankly to any counter party, and you say, hey, we'd like to go after a grant with you.

Molly Wood:

Mm -hmm. Mm -hmm.

Jon Bonanno:

It's 18 million bucks and you don't have to pay for it. And they go, tell me more. So what you've done with the grant process is you use the grant process as a catapult to get over the moat and over the big tall wall and into the keep. And so immediately you're talking to people about how this can work together. No, no, no, you're not paying for it. The grant is paying for it or at least some portion of it, right? And so let's deploy this together.

Molly Wood:

Right. OK, so give me an example of the grant lens. It's so funny. My mom worked in nonprofits my whole life and as a grant writer, primarily for at -risk and runaway and homeless youth. And the grant process, I mean, it's important that people understand what you mean when you say that. So give me an example of what kind of company would go to what larger company and say, let's get a grant for da -da -da from who? You know?

Jon Bonanno:

Mmm.

Jon Bonanno:

Yeah, yeah, yeah, yeah, that's a great question. And by the way, is your mother still writing grants?

Molly Wood:

Yeah.

Molly Wood:

not as much anymore. No, but there has directed millions and millions of dollars to help kids in her, in her career. So like Bravo mom. Yep.

Jon Bonanno:

Okay. Yeah. Because it is a very, yep, that's fantastic. Yep. Bravo, mom. it is a, you know, as much as I'd like to say, it's like super easy. It is definitely not. Yeah. Right. Yeah. Yeah. It's a deadline.

Molly Wood:

It's a horrible process. That's why she doesn't do it anymore. Like I just remember her being like furious every time a grant was due. Because you're right at the end and it's like the worst term paper imaginable.

Jon Bonanno:

Correct, correct, because you're relying on a lot of stakeholders typically. So the way our process works, and I will give you specific examples, but it's easy to sort of just walk through it. The first is we sort of onboard the CEO. And it could be the CEO plus the C -suite or their designated point of contact, whatever it might be. But we onboard them in quite a specific and rigorous manner so that we really deeply understand them and what they're doing and their value prop and all that kind of stuff.

We then want to go through their treasure trove in some cases of past grants, winners and losers to understand their track record. Grant makers love to give grants to previous winners, even if it's not with them, because you've proven that you can take grant money and not go to the Bahamas and have a big party, right? So you've effectively and also responsively gone and done this grant administration.

The next point is that we use some very specific tools to go out into the world and say what is available for this company based on what we know about them. And then we have a synthetic matchmaking process. So we're matchmaking between what's available and what's coming available and what they do and what they are proposing to do. The key here is it's always got to be on the roadmap some problems with grant making and people's experience with it is that they say, we're going this way, but there's this little pocket of money over here and they divert themselves to go do something that is very unnatural. And that is a terrible strategy. So part of our work is determining what is on roadmap and what is not on roadmap. So stay on the road, very key.

The next element is once you have a match, you prioritize, you know, the amount, the cost share, the date of delivery, like when do we have to actually deliver this? When is the deadline for the application? So all that has to be done, and then you go after the grants, right? And in every grant scenario, especially and frankly, thankfully, in the current environment, it counts if you have a disadvantaged community involved in this. It counts if you have an indigenous operator or an indigenous host or a female founder of something in your partner group. So in the example before, and you wanted something concrete.

Molly Wood:

And we don't, I want to interject though and say we don't mean this in a cynical way. Like to your point when you said earlier, the damage accrues primarily to the people who can least afford to deal with it. And so the fact that the grant landscape benefits those who are being disproportionately disadvantaged is a good thing. This is not a cynical, in no way is this a cynical ploy here. Right.

Jon Bonanno:

Yes. Yes.

Jon Bonanno:

Yes, yes. No, in fact, this is the exact reason why the IRA 22 has an energy community bonus because energy communities are the communities that have been directly affected by the pollution of the fossil economy, directly. Like they, in fact, live next to the highway or they live next to the oil refinery or they have, like this, they have been affected. So the historical perspective here is kind of important and what you just said is totally true. So, having a community group and community engagement, like bonafide community engagement is super important.

And at that point, then you have to get tons of letters of support, you have to get people in co -chairing budgets, then you have to submit on time and it has to be written in the right way. And it's best to outsource this. Like as a CEO, from zero to three FTEs, meaning full -time equivalent on your payroll, you're gonna be doing this stuff unfortunately, but once you get to like three or four, you need to outsource it until you get to about 75 people because that middle ground, and I see it all the time, the highest and best use of my special talent is definitely not writing grants or prosecuting grants, definitely not. They have to be archangels in the process, they have to be final reviewers in the process, but that's about five to 10 % of the work. 90 % needs to be taken care of by someone else.

Jon Bonanno:

I would also say that it's great for the grant makers because then they're getting to participate in this process of having the things they want deployed in their place. If it's the state of Mississippi and they happen to have a grant and someone says, hmm, we weren't planning on building a manufacturing place in Mississippi, but you know what, that tax benefits and grant package and all that stuff, pretty compelling and they have a really good workforce there doing specifically things that are interesting to us like pipe fitting or some other thing, let's go there. And now what has Mississippi done by allocating that capital? It's the cheapest allocation you can get.

In fact, I was calculating the other day, State of Washington, one of our great CEOs, won a grant from the State of Washington. State of Washington's gonna invest hundreds of thousands of dollars and get annually more than $2 million of income into that hyper local pocket. That is a fantastic, that's 10 to one. This is the best allocation of public dollars. And so I'm just sort of very excited about the work we're doing around grant making as a commercialization tool to enter the keep.

Molly Wood:

Yeah, I love it. Tell me about the grant landscape now, because I think certainly there is a lot of federal money available and a lot of entrepreneurs are aware of that. And also it's slower and harder to get that money. I think the people think.

Jon Bonanno:

Right, so, and of course we have the historical ITC, we have the historical PTC, so those are investor tax credits and production tax credits, production tax credits used for wind, ITC used for solar, and now energy storage as well, and that's 30 % of the capex gets to be monetized through a tax benefit, so that's pretty meaningful, but when you're looking at grants, which are non -dilutive slugs that go directly to corporates or to organizations, The Chips Act was pretty big.

The Build Back Better was pretty big. And the big kahuna was the Inflation Reduction Act of 2022. And that has been both wonderful and challenging because it takes a lot of clarity from Treasury as to how you're going to use some of these things. And the specificity has got to be really, really granular in order for tax monetization in some cases. But there are a ton of grants in that program. And so you see DOT, you see HUD, you see, so there are 38 federal agencies, all of which have 10 to 15 sub -agencies, all of which can grant. 

So it's just this enormous thing. The beautiful thing about grant making and governments is that they must keep the ask and the details in the public. So what does that do for us? Is it gives us a huge, it's incredible, it's like an 11 terabyte database of the extraordinary amount of details that are out there about grants at the federal level. But parsing that data down to something that's actionable is very, very difficult. And those are the tools that I was referencing before that Factor has designed, is tools to scrape down stuff and analyze the details so that we can match correctly and prioritize for our CEOs. That's key.

Molly Wood:

You specialize in doing this for climate companies though, right? Like why does it work so best for, you know, why does it work so well for climate companies in particular?

Jon Bonanno:

Well, first and foremost, Factor only does clean economy stuff. The second thing is that the clean economy is dominated, I would say, over 50 % by hardware, right? I mean, hard things have to go out and do stuff, right? That's another thing. You know, I think this definitely will work for sort of any industry, but I would ask you what industry is not touched by the clean economy? Ag, yeah.

Materials, yeah, built environment, yeah, mobility, yeah. What else do we have, right? I mean, clean economy is literally everything that needs to transform and take the fossil oil inputs out and create better products and services that delight the customer without making them pay more. That is the key. So the journey doesn't end at, we're gonna generate green electrons. No, it's just a starting point.

Molly Wood:

Got it. Okay, so you engage at that layer, choose specific companies, and then the CEOs come directly to you. The allocator kind of steps out of the way.

Jon Bonanno:

Yeah, yeah, they like to check in from time to time, how's it going, what's going on, this sort of thing, but our relationship is directly with the company. And here's an interesting thing that I've learned over the multitude of years doing this, is that the way we are compensated is we are compensated in two ways. And it's important to recognize why we do both. The first is we're compensated on an hourly basis, just like you'd have a service provider, but we're an advisor, not a consultant.

We are not a short transactional consultant looking to turn the meter as much as we can, deliver a report that no one looks at, and then go away. We actually care, and that's why we very diligently select who we work with. We want to see the outcome that you seek. And so we are very thoughtful about how much we're billing on a monthly basis, et cetera, but it is in cash. And why do we do that? It's because if you do not charge someone for your service, they deprioritize it. So if you wanna be a priority and keep in the important and urgent box, then they have to be paying for it in real time.

The second thing we do is initially or eventually over time, we are shareholders of the company. So just like you do with a board member, just like you do with a senior advisor, or a lot of people do with senior advisors, they make an allocation to them. Now that is a vesting allocation so that there's really nothing at risk except one more month. And you can terminate our engagement whenever you want. But the why we do the equity component is because we align our interests. I wanna see you be successful and I wanna share in that success.

And so I'm gonna do everything we possibly can to ensure that you are moving down that commercialization glide path and grants is part of it, emotional awareness and development is part of it. All of that, I wanna see your outcomes. But I also wanna benefit from your outcomes.

And that's why we align our interests with equity. So yes, it's cash to keep urgent and important. And yes, it's equity to align our interests over the long term because we're not consultants, we're advisors.

Molly Wood Voice-Over:

Jon Bonnano, founder and CEO of Factor dot eco sort of a combination of Jedi, master networker, cheerleader, evangelist, and busy bee, making sure the ecosystem of climate-friendly companies sprouts as many flowers as possible.

And that's it for this episode of Everybody in the Pool. Thank you so much for listening.

Email me your thoughts and suggestions to in at everybody in the pool dot com and find all the latest episodes and more at everybody in the pool dot com, the website. And if you want to become a subscriber and get an ad free version of the show, hit the link in the description in your podcast app of choice. Together, we can get this done.