S3E10: When the Train Has Left the Station – Anay Shah on Building Stepchange for the trillion dollar energy transition

“California electricity rates have doubled in less than 10 years. 93% of expected capacity added to the US grid this year is renewables because it is just cheaper and better. The market will always win.”

Anay Shah and Ben Eidelson aren’t career climate investors. Anay spent nearly two decades building companies - beginning at the State Department where he worked across 15 emerging markets, to selling solar lanterns in rural India, then scaling Remitly from 10 to 400 people, and recently running a 250-person team at Tala. Ben sold two startups, one to Google and one to Stripe, before leaving to figure out climate. Neither had a climate investing pedigree when they started Stepchange in late 2023.

What they found surprised them. The climate investing community is unusually collaborative. “There isn’t as much pointy elbows of securing the deal and pushing everyone out,” Anay explains. “If these founders are gonna succeed against the headwinds in the macro environment, we need the best talent on the cap table and all hands on deck.” Because everyone feels the existential threat, investors pull each other into rounds rather than compete.

Their fund structure plays into this. Stepchange writes $100-400K checks at pre-seed and seed. They don’t lead, don’t price, don’t take board seats. “We’re a sub-$10M fund. As a result, we’re very collaborative and high-conviction investors.” They raised $7M+ total with 100+ LPs who are tech execs and energy CEOs that act as scouts. Bain Capital came in as anchor. The climate community welcomed them because the sector needs more capital, not less.

The partnership works because they bring different operator backgrounds. Ben’s a two-time founder with deep product expertise, he wrote the definitive guide to software in climate tech that synthesized their thesis. Anay’s the scale-up operator who took companies from 10 people to pre-IPO, with a go-to-market and product-market fit focus. “He’s much more of a product person. I’m much more go-to-market,” Anay says.

They met through angel investing in 2023. Started talking every two weeks, then weekly, then spending six hours a day on calls looking at companies. After five months remote, Anay flew to Seattle. They spent a full day walking the city. “We talked mostly about ourselves and our values and what motivated us and realized we shared some really fundamental ways that we look at the world.”

Like most who have previous operator and founder experiences, Anay mentions the power of being able to switch out of evaluation mode into feedback mode for founders who pitch them. “The worst thing a VC can do is take the pitch, ask a bunch of questions, say ‘great, we’ll be in touch’ and never talk to you again. They just leave the founder in a lurch; they gain nothing from that experience.” They write detailed notes on passes. They iterate with founders they’re not investing in. They’ve asked technical questions about product stacks that lead investors haven’t asked. “How are we gonna invest in a product company if we don’t understand deeply how the product stack is built?”

Stepchange’s thesis is specific: changes in the climate are affecting every part of our economy and 60% of greenhouse gas reductions can come through technologies that exist today. The problem is adoption and deployment. While other funds in the sector invest in hard-to-abate sectors like nuclear fusion and sustainable aviation fuel, they’re focused on software solutions that have large customer demand today.

They target five sectors: transportation, the built environment, energy generation and grid, climate adaptation and resilience, and AI infrastructure. Notable investments include Nevoya, a zero-emissions trucking company; Hammerhead, power orchestration for data centers; Skyward, stopping lightning to prevent wildfires; and Futureproof, offering property insurance accounting for structural resiliency.

“We’re looking at asset-light companies and products that have immediate commercial pull in the market. Technologies that don’t require government incentives,” Anay explains. They’re selling to CFOs, not CSOs (Chief Sustainability Officers). The products are cheaper and better and happen to decarbonize the economy.

They’re targeting 30 investments at 1% ownership stakes, with a soft cap at $30M seed valuations. They’ve got 17 portfolio companies and nearly half have already been marked up. While typical funds have a 1-2% GP commit, Stepchange is more than 5x that – demonstrating their conviction in building a top decile fund in energy and infrastructure.

The train has left the station. “We are in the early innings of a trillion-dollar energy transition,” Anay says. “Businesses being founded today are going to be the next decacorns building this future low-carbon world.”

Thanks to Ethan Austin for the introduction to Anay 🙏

To hear more, visit slicefund.substack.com