Side investing (VC School) + Stripe's Nan Ransohoff: Frontier carbon removal | 1454

Episode Summary

Executive Summary: The episode covers two linked themes: venture fund ethics around side investments and Stripe Climate’s new Frontier fund. The hosts explain why personal or off-mandate investing can create conflicts with LPs, while also discussing how GPs should have skin in the game. The main interview with Nan Ransohoff details Frontier’s $925M advance market commitment to create demand for carbon removal, explain its structure, and why company-led buying could jumpstart a new climate market before policy fully catches up.

Main Topics: VC Sunday School: Side investments and conflicts of interest (Priority: 5/5): Molly asks whether venture partners can make personal investments outside their fund or syndicate. The discussion centers on communication with LPs, avoiding conflict-of-interest problems, and the reputational risk if a partner backs a company the fund passed on and it becomes a major winner. GP skin in the game and fund alignment (Priority: 4/5): Jason explains that GPs are often expected to invest their own capital in the fund, which signals alignment to LPs and increases credibility. He notes that solo and multi-partner funds commonly require meaningful GP commitments, though excessive side investing can create partnership tensions. Stripe Climate and the origin of Frontier (Priority: 5/5): Nan Ransohoff describes how Stripe’s climate work began as a 2019 negative emissions commitment and evolved into Stripe Climate, then Frontier. The goal is to help create a real market for carbon removal by acting as a reliable early customer for startups. How Frontier’s advance market commitment works (Priority: 5/5): Frontier is structured as a customer coalition, not a traditional venture fund. It pools demand from Stripe, Google, Shopify, Meta, and McKinsey into a nine-year purchasing commitment, using pre-purchases for very early companies and offtake agreements for scaling companies. Carbon removal market failure and technology gap (Priority: 5/5): Ransohoff argues carbon removal is still extremely early, expensive, and undersupplied. She says voluntary buyers can help, but government policy and compliance markets will ultimately be required to reach the scale needed for net-zero. Why Stripe is doing climate work (Priority: 3/5): The interview frames climate as central to Stripe’s long-term mission because climate change threatens economic activity. Stripe’s leadership sees this as aligned with an infrastructure company’s long horizon, even if it is not a short-term revenue driver. Examples of carbon removal technologies and ecosystem building (Priority: 4/5): Ransohoff gives examples of direct air capture, biomass pyrolysis, and ocean kelp sinking. She also emphasizes the need for ecosystem-building events, technical review, and partnerships with investors, policymakers, and buyers.

Key Arguments: Side investing outside a fund should generally be avoided because it creates LP communication problems, conflicts, and potential resentment if a rogue investment becomes highly successful. GPs should usually have personal capital invested in the fund to demonstrate alignment and skin in the game. Exception processes can exist through LPAC approval or limited de minimis personal investment allowances, but transparency is essential. Stripe Climate started as a company commitment, then evolved into a broader buyer platform, and now Frontier is meant to create a guaranteed market for carbon removal. Carbon removal is necessary alongside emissions reduction because current climate math requires pulling CO2 out of the atmosphere, not just reducing emissions. Voluntary buyers alone will not be enough; government participation and compliance markets will likely be necessary to scale carbon removal to the needed level. Frontier is not a venture fund seeking equity returns; it is an advance market commitment designed to provide customer demand and de-risk early technology development. Early carbon removal companies need guaranteed customers to attract capital and scale down costs, similar to how solar and other technologies learned over time. Stripe believes its role as an infrastructure company makes climate action strategically aligned with its long-term business health. The field needs ecosystem coordination across founders, financiers, customers, and policymakers to move faster.

Data Points: Frontier fund size: $925 million - Announced advance market commitment for carbon removal purchases Stripe Climate initial commitment: $1 million - Initial negative emissions commitment in 2019 Stripe Climate cumulative funding mentioned: $15 million - Amount Stripe had provided to date before Frontier announcement Existing Frontier/Stripe climate portfolio: 14 companies - Nan says Frontier/Stripe Climate has 14 companies currently in the portfolio Companies where Stripe was first customer: 11 companies - Stripe was the first customer for 11 of the 14 companies Carbon removal delivered by end of 2021: less than 10,000 tons - Nan cites the tiny amount actually delivered so far Needed annual carbon removal by 2050: roughly 6 billion tons per year - Scale required to meet climate goals Target permanence threshold: >1,000 years - Stripe’s criterion for acceptable storage durability Target cost threshold: $700 per ton in coming decades - Desired long-term economics for Frontier-backed solutions Target scale threshold: >0.5 gigaton per year - Potential annual removal capacity Frontier looks for Funding horizon: 9 years - Frontier is structured as a nine-year commitment Companies in Frontier consortium: Stripe, Google, Shopify, Meta, McKinsey - Named corporate contributors to the fund First-year business participation: 2 million businesses - Stripe Climate lets businesses donate revenue toward carbon removal Examples of GP fund commitment: $200K–$500K - Jason cites his own prior commitments in $10 million funds Common GP share in a large fund: 1%–2% - He notes expected GP commitments in a $200 million fund Early-company purchase size example: $500,000 - Illustrative pre-purchase amount for very early carbon removal companies Illustrative personal-investment exception threshold: under $5,000 - Mentioned as a possible de minimis syndicate allowance

Pivotal Quotes: "The overwhelming rule is you do not invest outside of your fund because, on a hygiene basis, you will have problems." — Jason: Explaining why side investing is usually discouraged for venture investors "We're not taking equity stakes in these companies. We're not getting a return. It's money in tons out." — Nan Ransohoff: Describing Frontier’s structure as a buyer commitment rather than a VC fund "We need to compress 15 years of development into the next three to five." — Nan Ransohoff: Emphasizing urgency in scaling carbon removal technologies

Implications: For VCs, transparency and fund alignment matter more than opportunistic side deals. For climate startups, Frontier could provide the demand signal needed to unlock financing, scale hard-tech solutions, and build a real carbon removal market before policy fully catches up.