Sam Smith-Eppsteiner is a partner at Innovation Endeavors. When it comes to investing, Sam gravitates toward ideas that leverage emerging technology, growing datasets and accelerating learning cycles to improve real-world infrastructure. She’s particularly interested in reversing climate change; opportunities to bring automation, computation, flexibility, and sustainability to industrial sectors; and how the intersection of biology and technology will change the food we eat, materials we use, and more.
Sam led the firm’s investments in and currently sits on the board of: Plotlogic, a company leveraging hyperspectral imaging and ML to optimize mine operations; Machina Labs, which is introducing unseen agility to the manufacturing industry by marrying industrial robotic arms with advanced modeling; and FutureProof, a next-generation insurer focused on climate-related risk.
Previously, Sam was a management consultant at Bain & Company in San Francisco, where she worked on strategy, cost assessment, and M&A for clients across tech, retail, food, and private equity. While at Bain, she led its nonprofit consulting group Inspire, Inc. in San Francisco, where she advised cleantech and education organizations in Nicaragua and Afghanistan. Sam also worked in product at an ag & food social enterprise in Rwanda and at startups in the autonomous vehicle and healthcare AI spaces.
Sam holds an MBA from the Stanford Graduate School of Business and a BA in Political Science from Stanford University, where she graduated Phi Beta Kappa.
Breakthrough advancements in understanding climate risk: our investment in First Street
It can be difficult to comprehend non-linear trends, whether appreciating how savings compound over time, or the velocity with which diseases spread. So, while we know that we are dangerously close to environmental tipping points that could lead to disastrous shifts in the Earth’s climate, it’s often hard for us to understand how these changes will impact us.
How will the blistering heat, which set a global record this week, change our lives, businesses, economies and societies? What do record-setting ocean temperatures mean for the coral reefs at our beloved beaches and for the increased risk of flooding or hurricanes in our backyards?
Because climate change's impact is non-linear, our default mental models have a hard time figuring out the answer, and these answers are critical if we’re to adapt and build resilience against climate change. We need to understand, quantify, and translate climate risk into simple financial, economic and actionable terms.
That is where modeling the physical risks associated with climate change comes in. The field of climate and atmospheric modeling has made massive advancements over the decades, but still remains extremely challenging due to the immense number of co-dependencies, uncertainties, and computational demands to simulate such complex and vast systems. In speaking with dozens of researchers and teams in this space over the years, we’ve come to appreciate the unique challenges of modeling the likelihood of physical climate events like flooding, wildfire, and hurricane winds today, and how they will change in the future. It’s clear the planet is warming at an alarming pace, and humans are the cause, but getting precise about the implications is the challenge.
Tools that exist today, including FEMA’s flood maps, are inadequate, siloed, and difficult to use. In addition, these incumbent products use a black box approach that leaves users guessing as to how the results were derived — a limitation for companies looking to fulfill their climate disclosure obligations. Furthermore, the data often isn’t tailored to the specific building or asset at risk. These inadequacies leave millions of people and businesses vulnerable to severe physical and economic damage.
Enter First Street. First Street uses a bottoms-up, physics-based modeling approach that yields highly granular climate models for every property in the United States, and surfaces risks for citizens, industry, and government. Crucially, First Street’s approach leverages transparent, peer-reviewed methodologies to calculate the past, present, and future physical damages alongside economic losses — a contrast to existing alternatives in the market.
First Street’s software products are already being used across leading government agencies, financial institutions, and other enterprises, including Fannie Mae, PNC Bank, and Redfin. When you look to buy or rent a home, you can see First Street’s risk scores across major real estate portals, making it easy to understand the risk that climate change poses to that property. We believe that, soon, every organization and individual will need to factor climate change into their decision-making. We expect First Street will become a trusted provider of models and products to enable us to make better, safer, decisions.
We were blown away when we met the First Street team, spearheaded by founder and CEO Matthew Eby, who has spent over a decade working to better define and understand America's climate risk. His team includes a deep bench of scientific and business expertise: Dr. Ed Kearns serves as First Street’s Chief Science Officer and is deeply embedded in the scientific community, serving as an Advisory Committee Member on both the NASA Applied Sciences Advisory Committee and the Climate-related Financial Risk Advisory Committee; Chief Product Officer, Quinn Hawkins, brings a wealth of product expertise from both Redfin and Microsoft; and board member Scott Stephenson is the former Chairman and CEO of Verisk.
The team’s ability to inspire, envision, and execute made it easy for us to lead the Series A-1 to accelerate First Street’s global expansion alongside new investors SE Ventures and Nuveen Real Estate, and existing investors Galvanize, General Catalyst, and Congruent Ventures. We are thrilled to welcome First Street to the Innovation Endeavors family, and we look forward to supporting the team on the journey ahead!
Breakthrough advancements in understanding climate risk: our investment in First Street
There are a few key structural shifts associated with this transition. First, most of these renewable assets are intermittent. Solar and wind are, of course, time and weather-dependent. As a result, they are neither consistent nor “dispatchable.” This generation will never align perfectly to demand curves, such as peak AC demand during a heat wave. This brings us to the second key development, the ability to store electricity and consume it when needed. Historically, electrons on the grid have been consumed in real-time the moment they are generated. Given that fossil fuels are dispatchable, they’ve historically played the role of filling gaps on the grid. With the rollout of grid-scale batteries, we expect to see much cleaner, more efficient, and more precise peaking. Lastly, renewables are far more distributed than historical generation. What this means, is a far greater number and diversity of suppliers to the grid.
With these shifts, the transition toward renewables is massively increasing the complexity of managing and operating our electrical infrastructure. Even more challenging, we’re pairing this gargantuan transition on the supply side of energy with an equally important one on the demand side. With more frequent and more severe weather events associated with climate change, we expect to see peak energy demand exacerbated. The net effect of increased intermittency on the supply side with more extreme demand scenarios on the load side is volatility. As an example, during 2021’s winter storm Uri in Texas, electricity was selling at 40–80x typical price per megawatt-hour. This event was particularly painful given both failures on the supply side, with natural gas plants and wind turbines affected by freezing conditions, and demand exceeding ERCOT’s scenario planning.
Looking forward, the good news is flexible loads have huge potential to solve this problem. For example, in mid-August last year, a 1.8 GW discharge from batteries onto the grid in Texas quickly reduced wholesale electricity prices from $5,000 to $2,700 per megawatt hour. It’s important to note just how novel this is. This would not have been possible even a year or so prior: ERCOT only had 3.2 GW of energy storage capacity in 2023, up by 1.2 GW installed in 2022. Energy storage, largely in the form of batteries and thermal systems, is the ultimate flexible asset as it enables optimization of charging and discharging. Additional flexible loads like vehicle charging, refrigeration, and some kinds of computing workloads, also have very compelling potential on the demand side. This is because these loads don’t always need to be running 24/7 at constant intensity and can be selectively scheduled.
What’s missing: sophisticated financial exchanges and markets for electricity
So, how do we mitigate the challenges associated with intermittent renewables and the downstream energy market volatility?
Behind all this complexity is an ecosystem that has received little attention: the power markets. Power markets today look a lot like securities did in the 1990s, or advertising in 2005. You used to have to call your stock broker to put in a trade for you; now, you open your RobinHood app. You used to have to buy annual or seasonal blocks of ad inventory in magazines, TV, or on the internet; now, this is powered by programmatic media infrastructure provided by Google, The Trade Desk, Meta, and others. These innovations have unlocked trillions of dollars in value purely by bringing efficiency and granularity to their respective markets.
Today, power is traded using similarly antiquated methods as the old world of securities and ads: much is bought and sold over-the-counter in day, month, and year-ahead markets. Essentially, the largest power buyers and generators submit bids — digitally or over the phone — and secure large 4–8-hour blocks of power for the coming period. Their bids are typically in the tens of millions, and their hedging and risk-management strategies are rooted in this bulky and imprecise model. This imprecision makes the risk management of power portfolios extremely challenging. Every time there is a major heat event in Texas, for example, numerous energy retailers go bankrupt based on their bulk positions and being unable to meet their financial obligations as they come due. This is largely what power looks like today.
Enter ElectronX. ElectronX is building a new financial exchange to trade electricity futures. The platform offers much more granularity and sophisticated risk management than existing solutions, which unlocks better hedging and pricing of intermittent energy assets on an increasingly volatile grid. This granularity is achieved through two key innovations: (1) time — intra-hour and hourly tradable derivatives products for each operating hour in both day-ahead and real-time markets, and (2) size — a reduction in the minimum trade size to 1MW, decreasing the implied multimillion dollar trading requirement today. Users of ElectronX will no longer need to “overhedge” to manage risk and can instead optimize upside. Moreover, ElectronX is bringing the first open access, direct exchange to market in the category. This will enable smaller players, startup VPPs and developers, and aggregators to be able to participate in financial markets directly.
We anticipate a virtuous flywheel here. By leveraging more precise financial products, renewable assets should see better return profiles and faster payback periods. The increased stability and financial performance of these assets should encourage more capital to flow into renewables, only accelerating the clean energy transition further.
ElectronX, a world-class team and a massive opportunity
ElectronX is capitalizing on a major and once-in-a-century shift in the energy mix. Such an ambitious effort requires a highly specialized and interdisciplinary skill set, as the inner workings of power markets are esoteric and complex. Few people outside of power trading understand how the financial infrastructure that keeps our lights on actually works. Yet it’s not just power market expertise that’s required — financial exchanges themselves are unique and delicate systems.
We could not have come up with a more ideal founding team than Sam Tegel (CEO), Evan Caron (Co-founder), and Philip Krim (Co-founder). Sam has been trading at large scales across different asset classes (e.g., derivatives, fixed income, equities, FX) for decades, worked at top quant funds like Millenium and Jump Trading, and has been a key contributor to early exchange success. He has seen this movie before and knows how to solve the cold-start problems of market liquidity. Evan was a power trader in ERCOT — Texas’s unregulated power market — for over a decade and has experienced firsthand the pain of existing trading workflows and systems.
We see ElectronX as a core piece of infrastructure and a true catalyst for the clean energy transition. We couldn’t be more excited about the massive opportunity ahead and potential for the company — we are grateful to be along for the ride. Currently, ElectronX is seeking regulatory approval and expects to launch next year with many of the world’s largest power traders.
See here for The Wall Street Journals’ coverage of ElectronX and their financing, and here for the company’s press release.
Building modern financial infrastructure for the changing energy sector: Our investment in ElectronX
Climate: Changing the narrative on “hard to abate” sectors
Leveraging venture capital for complex problems
There’s no way around it: If we want to make a dent in the climate crisis we absolutely must tackle our hard-to-abate sectors. Sometimes described as “horsemen of the climate apocalypse,” the worlds of road freight, cement, steel, chemicals and aviation are collectively responsible for roughly 30% of the world’s emissions — and the scope 3 emissions of many of our most essential industries. We rely on these sectors to deliver affordable cars and homes, well-stocked grocery stores, and affordable travel to see the ones we love. They’ve been termed hard to abate because there aren’t NPV-positive decarbonization solutions available at scale today. In other words, the market failures that have prevented us from solving climate change long ago are particularly pronounced in these sectors.
Transparently, as financial investors, we’ve wrestled with what we can back here. To win, companies need to compete in commodity markets in which incumbents pollute for free, often overseas. They often need to build out massive facilities, requiring large amounts of capital and time before getting to market. Finally, it has often been unclear to us if a single process innovation can sustain a competitive advantage over time as others innovate. Competition is abundant. It can look like someone leveraging the same tech at a lower cost structure (e.g., China going from producing 0%- nearly 60% of the world’s PV cells in 10 years driven by subsidies). Or, given the commodity nature of end-products here, it can look like totally orthogonal approaches (e.g., different battery chemistries competing to achieve the same 8 metrics).
But we have many reasons to be hopeful. First, demand signals have never been stronger: as customers demand cleaner products and talent increasingly wants to work for mission-aligned employers, companies are increasingly determined to tackle their carbon footprints, including scope 3 emissions, and in doing so, are creating undeniable demand signals for cleaner commodities. For example, First Movers Coalition members have committed to more than buy more than $12 billion worth of net-zero products, and initiatives like SteelZero reflect a growing appetite for even bolder commitments. Second, regulatory incentives have changed the cost floor for cleaner alternatives dramatically. For example, the IRA’s $3/kg hydrogen tax credit is a game-changer for accelerating the rollout of clean hydrogen, the “swiss army knife” of industrial decarbonization. Third, many incumbents are seeing the writing on the wall and investing in new solutions — for example, ArcelorMittal, the world’s largest steelmaker, recently led a $120m funding round into green steel startup Boston Metal. Fourth, venture capitalists are investing as well, with north of $20 billion in dry powder. And, perhaps most importantly, we’re seeing the best batch yet of brilliant, determined entrepreneurs tackling these challenges. Earlier this year, we had the chance to spend the evening with ~20 such entrepreneurs and came away inspired and hopeful. While we don’t have all the answers, we wanted to at least share some of our takeaways from the event and some of the questions that we are wrestling with as we think about investing in these spaces.
Some takeaways:
You can absolutely build a valuable hardware-driven company, but hardware alone often isn’t enough. Four of the 10 most valuable public companies are hardware-centric (Apple, Tesla, TSMC, and Nvidia). At the same time, primarily hardware — and materials-driven companies lost $0.8-$0.95 on the dollar in cleantech 1.0 (we like this work by MIT, this post by Equal Ventures, and this work by Bessemer). While investing in physical assets was not as lucrative as software, there were still some winners — but on a longer investment time horizon. Tesla’s market cap topped $1 trillion almost 12 years after it became a public company, and other hard tech companies (e.g., QuantumScape, LanzaTech) took more than a decade to become unicorns (more in this post by B Capital). The conclusion? Unless you’re operating in a large and epically supply-constrained market, finding ways to either 1) enable brand-new capabilities (e.g., Nvidia in 1993 bringing 3D graphics to the multimedia market), 2) provide a vastly superior customer experience and brand affinity (e.g., Tesla and Apple), or 3) bring a new business model that transforms the market in which you operate (e.g., TSMC) and/or lets you build an information advantage over time will be critical.
The demand signal today is undeniable, but don’t bet on a sustained green premium. We’re certainly seeing green premiums for many commodities today — for example, in the past decade, high quality recycled plastics reached a premium of 60% over virgin plastics — but this dynamic is only sustainable in markets where demand is expected to outpace supply for the foreseeable future, a risky thing to bet on in the long term given the markets’ tendency to find balance. To bet on a company in this space, we’d need to see a path to 1) cost parity or advantage versus conventional alternatives (while still leaving room for a healthy margin and with reasonable assumptions!), or, even better, 2) outsized value beyond climate impact (via one of the mechanisms described above).
As a result, if in doubt, the approach with the lowest cost floor wins. Leveraging synthetic biology for fuels and materials is a great example of where this critical point has often been missed. While we certainly could make 60% of the physical inputs to our economy biologically, it’s not clear to us that we should, particularly where clean & performant synthetic alternatives exist. Why? For many synthetic approaches, the price of electricity sets the cost floor, and for most biological approaches leveraging microbes, the cost of sugar sets the cost floor; the former will usually drive better economics than the latter. We’re intrigued by Savor’s synthetic approach to fats for this reason. With that said, it’s important to caveat that we’re big believers in synthetic biology’s potential to solve major climate challenges — more of our thesis in our bio-centric newsletter, Bio Endeavors. Hydrogen is another great example: assuming hydrogen is generated by electrolysis, it will only make economic sense in areas where electrification is impractical (e.g., not for most road transport, as well-described in this dated-but-still-relevant post by Jigar Shah and a more recent study).
Carefully considering your role vs. that of incumbents is mission-critical in the early days. Ian at Cantos wrote a great piece on full-stack deep tech last year where he rightly pointed out that selling equipment or services to a slow-moving, thin-margin incumbent is a really tough spot to be in as a startup. At the same time, building a new full-stack company doesn’t always make sense, particularly in an environment where the cost of capital is high. For example, we find Universal Hydrogen’s approach in aviation incredibly thoughtful: they are building conversion kits for regional aircraft that both de-risk their technology and get them to market by 2025, but the long game is to position themselves as an essential enabling element for hydrogen-powered aircraft that will ultimately be produced by incumbents starting in the mid-2030s (replacements for the Boeing 737 and Airbus A320). In this way, they can drive impact at scale while still avoiding the fusion-scale investment required to build a massive aircraft program.
Figuring out the financing path early — and creatively — is essential → While the available capital stack looks well-resourced, there’s a huge gap between early-stage venture capital checks and the $200m+ DOE loan program scale checks, particularly given the relative slowdown of growth rounds in the current market. We like CTVC’s post on the bridge to bankability, which dives into this gap in more detail. Certainly, there are lots of creative ways to bridge this gap, for example:
Grants: There’s a wealth of grants available, and also a wealth of experienced folks available to help startups access those dollars (e.g., we’ve heard great feedback about Joel and Ross at Climate Finance Solutions and know that others like Boundarystone do similar work as well).
Debt and equipment finance: Certainly, venture debt continues to be an option, but other forms of credit are also available. For example, we’ve heard from folks who had great experiences with Third Sphere’s credit group and CSC leasing for equipment financing.
Forward purchase agreements: We’ve seen PPAs be game-changing in renewables and, more recently, in carbon removal via the work done by the Frontier Fund.
However, even amidst all these options, there continue to be major barriers, especially for first-of-a-kind facilities. For example, to access credit, early startups are often expected to have offtake agreements signed, which simply aren’t standard in many industries with more fragmented supply chains (e.g., ready-mix concrete). We’ll readily admit that we don’t have a crystal-clear perspective on what the right financing path should look like, but we’re convinced that figuring this out in the early stages for each company will be critical.
Finally, we believe in a ‘yes and’ approach, not a one-size-fits-all solution → We enjoyed a spirited debate about the value of SAFs vs. hydrogen for long-haul flights, but given that we’re nowhere near where we need to be, we need it all — and almost certainly will for the next half-century to come.
A few themes we’re excited to invest in:
Decarbonizing hard-to-abate sectors is mission-critical work for our planet, and we’d love to put dollars to work solving some of these problems. Two themes we’re thinking about these days (although far from an exhaustive list):
Companies using new technology to tackle the “developer’s plight” → For us to succeed in these hard-to-abate areas, we’re going to need to develop a lot of projects. We believe that new technologies built on foundation models can make the development process much easier, faster, and more likely to succeed, particularly when it comes to siting; navigating complex local and national permitting and regulatory landscapes; and traversing government incentives. We’ve enjoyed meeting some great teams in the space such as Othersphere and Blumen, and are excited to share more of our thinking in a future post to come.
Companies driving 10x more volume in supply-constrained markets (i.e., may have technical risk, but effectively no market risk) → For example, every single person we’ve spoken to in aviation-land can’t get enough SAF — literally cannot buy enough of it — despite the fact that SAF costs 2x the price of conventional jet fuel today. While technical defensibility is certainly on our minds, for large and supply-constrained markets, there is room for multiple players to build significant companies provided you can deliver supply in a cost-competitive way and get creative about the business model in a way that builds a sustainable advantage.
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Thanks for reading. If you’re building a company to tackle hard-to-abate sectors, whether in the above categories or not, please reach out — we’d love to hear from you.
Special thanks to: Paul at Universal Hydrogen, Joe at Lydian, Akshai at Brimstone, Kevin and Caleb at Molten, Henrik at Savor, and many more for conversations that have inspired us — and most importantly for the kickass work you’re doing to tackle these critical challenges. We are grateful to be part of your journey.
Climate: Changing the narrative on “hard to abate” sectors