Interview with Kathryn Meng, RA Capital Management

Catherine: Hi, I’m Catherine McLean, Founder and CEO of Dylan Green. And today I have with me another Kathryn, beautiful name. Kathryn Meng, she’s joining us from Boston. She’s the investment director of RA Capital Management. Thanks for joining me, Kathryn.

Kathryn: Thanks for having me, Catherine.

Catherine: First I want to congratulate you on your new role at RA Capital Management. Can you introduce yourself and tell us a bit about your current role?

Kathryn: Of course, so I spent my entire career focused on planetary health. I started in academia tech transfer early stage incubation and then moved into venture capital and decided to gain operating experience to strengthen my perspective. I always intended to get back to venture capital when I found the right fund with the right team. And the right thesis, so I was delighted to join f earlier this year. I’m an investment director on the planetary health team. For those unfamiliar, RA is a multi stage investment manager with approximately nine and a half billion assets under management. We have historically invested in public and private healthcare and life sciences companies but launched a planetary health investments team at the start of this year. So we focus on companies that develop and commercialize cost effective solutions to reduce emissions, increase resource availability and restore environmental quality. So what that means for what I actually do in my day to day, in practice, I spend my time building pipelines, speaking to founders and teams building relationships with financial and strategic VCs, building our team learning about innovative technologies and business models and generally staying up to date on market trends.

Catherine: It’s just like having your Superwoman cape on basically.

Kathryn: There we go. Yeah.

Catherine: And I know that you have several degrees in geography and you’ve previously worked for the UN. How did you make your way into clean energy and sustainability?

Kathryn: It’s been a windy road. But I’ve never lost sight of my North Star, which really has been positive impact for people and the planet. So initially, I wanted to pursue humanitarian work, all focused on peace and conflict studies. But it was through that course of study that I became aware of and really started to focus so heavily on the environment because I saw that environment and resources were at the core of so many conflicts, and that’s what opened my eyes to geography as a discipline. I was fascinated by the intersection of environment, economy, politics, and society. And I started looking into sustainability, everything from raw materials to energy systems. And I was intrigued by the number of market ready technologies that were met with limited market uptake. So I started to study why certain technologies like renewable energy solutions faced adoption and deployment hurdles. So that’s ultimately what brought me to work with innovators entrepreneurs across the planetary health space.

Catherine: You previously worked for organizations like Cleantech Open Northeast, Western Cleantech Incubator and the Massachusetts Clean Energy Center. What advice do you have for those interested in pursuing a career focused on investing in climate tech startups?

Kathryn: So first and foremost, you have to put in the work. So you gotta start from where you can, but then you have to put in the work and focus on knowledge and growth. And by that I don’t mean go get an MBA or read some articles or case studies about energy and environment. I mean, you can be a whiz at financial modeling or you can know everything there is to know about energy policy, but that does not set you up for success as a VC. So people tend to not like this answer. But it’s like building muscle. Reps are really, really important. Whether you’re coming from a climate oriented operations background, or a non climate investing role, you actually may need to start more entry level than anticipated. Because successful investment leaders have seen so much. They rolled up their sleeves. They’ve dealt with curveballs they’ve had to troubleshoot. And it’s that practice it’s those reps that bring a greater wealth of understanding than any desk research is going to bring or any adjacent work is going to bring it’s this space is filled with diversity and nuance and the pattern recognition really is critical. In addition to that, the only other two things I would mention is, you need strategic thinking but you also need real analytical skills and it helps to build a technical skill set. We’ve been hiring material scientists, chemists, medical doctors who can actually help evaluate specific technologies. And then there’s also the soft side so you need strong EQ, so flex your interpersonal muscles as well. It will help from everything from deal sourcing, to company evaluation to board engagement.

Catherine: I think that’s really really good advice. I always say the candidates be prepared to sometimes take two steps back to take a step forward, right? I think that just using the UN as an example, like I had a very good rear and then I went back to school and was an intern, at the UN and it was like a very hard pill to swallow, but it’s talking about learning something from the ground. up it was like it really made me realize what it is I wanted to do. I digress. So what are you most excited about in the planetary health investment space and what are you most looking forward to working on at RA Capital Management this year?

Kathryn: So I’m really most excited about demonstrating that companies that have a positive impact on the planet and also provide outstanding returns. And I really believe that in turn outsized returns will finally help yield the outsized impacts that we so desperately need to see. So I think about the markets. It’s not been easy in this space. Those of us who’ve been in the sector long enough vividly remember what’s now called Clean Tech 1.0 In the early 2000s, and it arguably took the sector a decade to recover from that and as fate would have it, COVID, supply chain issues, market trepidation, all arose concurrent to the recovery, but the beauty of a boom and a bust like that is the wealth of lessons learned. And as the old adage goes, learning from the mistakes of others is a far simpler and less expensive process than making them all yourself. So we’ve got the perspective and the reps on our team to be able to recognize patterns. We know for example, that it’s not always and might rarely be the best technologies that win, you can have a great technology but if you don’t have a winning business model, and go to market strategy alongside it, you can fail. So we know what to avoid, like avoiding banking on businesses that rely on regulations and incentives. It’s okay if that’s the powdered sugar on top but there’s got to be a lot more substance below with the entire value chain. I could go on but to your question we the global societal league can invest in a myriad of solutions, but we’ll be more successful and will attract more capital and will have more impact if we show that these investments can be lucrative.

Catherine: I think also, so much of it is just timing. Like that’s how it is with recruitment, like so much of it is just like, a little bit of luck and a little bit of timing.

Kathryn: A little bit goes a long way. Good timing to boot.

Catherine: Right. It’s a good recipe. Can you highlight some of the key areas you’re currently seeing the most opportunity in?

Kathryn: Absolutely. So we’ve decided to focus on five core areas. Those are critical minerals, food and agriculture, energy, greening industrials, and enabling solutions. Now, the gut reaction is it’s not so straightforward to bucket those solutions. But the beauty is when you see those points of overlap, sometimes that yields the most promising opportunities. So for example, companies that increase resource availability of the critical minerals that we need to enable the low carbon economy think copper, nickel, steel, aluminum, we may categorize them as critical minerals, companies, but the businesses can be key for areas of the energy vertical like batteries. And in addition to those verticals, we also look at different technology types. So we’ll look at data science and automation, material science, chemical engineering, systems and supply chain engineering and of course, synthetic biology and bioengineering were in an excellent position on the ladder, given RA Capital’s deep expertise in biotech and life sciences. But overall, we’re looking for whether it’s one of those verticals or one of those tech types, the criteria that we’re looking for is all the same. And I can bucket that into three sections. One is just companies with low scientific and technical risks. So we’re okay with engineering and scale up risk. There are other methods of funding that are better suited to fund basic r&d. Second, will be looking for companies with products in-market or with a short timeline to commercialization. So two to three years is great. Ideally, no more than five it’s okay if the products that make it to market during that horizon or early entries rather than full deployment. But we do need to see early demonstration of product market fit. And finally, we need those businesses to be capital efficient or capital light. So we need to understand how much money will actually be required to technically de risk and determine Product Market Fit ideally far less than half a billion dollars. But we really need a pathway to bankability, a pathway on dilutive capital and it’s it’s odd to say that as a VC I feel like so many folks entrepreneurs see VC as a sort of badge of honor that some entrepreneurs wear when really it’s the most expensive form of capital you can get so your space should be set on non dilutive r&d capital upfront venture dollars as needed, and then shifting to lower form cost of capital as you scale.

Catherine: How do you find these opportunities? So either as an investor or an entrepreneur looking for the right combination of technology in the business model?

Kathryn: Research and research some more and when you’re done with that, find a great friend or colleague to research some more. I mean, humor aside, it truly is all about landscaping and getting to know the market. So at RA Capital we are incredibly evidence based and data driven. And I think that’s what’s led to the firm’s success. So before we invest in any space, we first develop a very deep understanding of the full value chain. We then will explore all of the technical routes to approaching a specific problem statement, whether it’s an approach rooted in data science and automation or material science. Well then think through commercialization strategies and business models. And we’ll consider all the possible permutations and combinations of tech meets business and situate them within the value chain. And doing all of that allows us to come up with core criteria related to any market where we can then say the winning solution must meet XYZ criteria. We then quite literally build out a decision tree place all of the solutions we’re aware of in this space, whether they’re r&d efforts, startups and convince on the decision tree, and it becomes a tool a real guideposts to help vet the opportunities that come in the door and I encourage everyone to do this. Whether you’re an investor or whether you’re a company it really helps you understand your competitiveness, look around the proverbial corner and know what might be coming next foreseeable hurdles, etc.

Catherine: Right. I know risk is top of mind for financers and developers in 2023. How are you navigating this in your day to day work? And what are some of the trends you’re seeing in the venture capital space?

Kathryn: So I see risk in two ways, risks that are outside of your sphere of influence, I would say don’t avoid them. actively look for them, understand the mega trends that might influence them and try to quantify them and have a good think on what your appetite for risk truly is. And the second bucket would be risks that you can control. So on those I’d say make a plan and execute. So do things like draw tolerances. The capital efficiency parameter that I mentioned earlier is a good example. So we have made the decision to invest in companies that have a pathway to bankability, so we can actually think through and evaluate what a company needs to demonstrate before they can secure more traditional ng perform costs of capital. So similarly, we can draw that line in the sand at risk and choose to do engineering scale up risk. And another trend that I’m seeing in the VC space that I anticipate is a return to Earth on valuations. So in recent years, we’ve seen extremely high valuations even in the earliest stage companies that still have an abundance of technical and commercial risk and little to no revenues to show. So, VCs and startups need to come to terms with what valuations actually mean valuations are, again, not a badge of honor, their representation of enterprise value, and it’s tough, because startup work is hard. I’m sure you know this as a recruiter.

Catherine: And I’ve set up two companies.

Kathryn: Yeah, you get it. It’s grueling work, and that’s why it’s a tough pill to swallow that sometimes, in spite of all of that work, the actual underlying value of the business might not have increased commensurately. And so that goes back to risk. This can be due to factors that you as an entrepreneur have little control over, you can have the greatest business development team but you have little to no control over the pace and decision making of a large corporate procurement team, right? So, all in all, it’s easy to manage the risk, you need to set healthy targets and valuations. So that trajectories can be upward, not lateral or down. And if you don’t think you can sustain or improve on a valuation that you’ve been given and 12 to 24 months, then don’t set that price and focus on achieving revenues on reaching profitability. Markets are super uncertain, so try to set yourself up for self sufficiency, and bankability as soon as possible.

Catherine: I want to shift a bit now to focus on women. This podcast is very passionate about, as is Dylan Green, as is Catherine McLean. It’s well known that the clean energy industry is primarily white and male. It’s also well known that the majority of VC funding goes towards male led companies. Do you think having more women in leadership roles in climate tech can help change some of these realities?

Kathryn: I think you can. And I think it needs to happen. And I’ve personally never wanted to be aware of my gender. I’ve always truly wanted it to be a non issue. But that is not the case. Too often, I’m still the only woman in the room. You often get pitch decks where the entire team or leadership side all men and the same applies to the lack of racial, ethnic and other forms of diversity. It’s frustrating because they feel like a broken record when I cite the studies that show the benefits of diverse teams on enterprise results. You know the benefits are known. Diversity strategies are proliferating. But we’re still not seeing the outcomes that we need to. So I do think that to your question, we need to have support from the top. Honestly, that’s one of the reasons why I’m thrilled to have joined a team or one of our partners is this powerhouse, Female Bridget O’Brien whose determination and presence is backed up by demonstrable results. And she’s complemented by our other partner, Kyle Teamie, who’s actively inclusive and equally uncompromising on the quality and outcomes. But still not easy to build a diverse team, no matter how intentional we are about it. And I think that’s because of structural inequities. And so we need to address those from early education onward for women and bipoc communities. We need to support each other in the day to day and build each other up and open room for diversity and leadership positions, not fight for a few token rolls and that means we need to keep putting in the hard high quality work, delivering high end products so that we can actually point to successes and stand on our track records.

Catherine: I think also a lot of times those wins that we have are over achieved. Because for it to be recognized. A lot of times it has to be like above and beyond. It can’t just be like expectations met.

Kathryn: Everything expects so much above and beyond from us, Catherine.

Catherine: Right. Do you have any advice for those looking to transition into clean tech from other industries?

Kathryn: I would just say Come join us! Please come join us. There’s more opportunities than you can imagine. And I guarantee that the skills are transferable. It’s all about finding the right fit. So we need those killer sales and business development folks. We need the marketers who can bring creativity to the space that tradesmen and women who can actually get these solutions on the ground. There’s a wealth of resources for those who want to get into this space and work on climate, climate phase, climate journey, climate draft, just to name a few plus folks like yourself, there’s an abundance of support, so don’t feel like you need to go at it alone. Ask for help. Make the calls, call the lifelines. And, we’ve got room for talent in this space. And these are the jobs that are going to persist. These are the critical roles and skill sets we’re going to need for decades to come.

Catherine: But I think going back to your earlier point about doing the reps I mean that’s what it is doing the reps so many times people will contact me and they’re like, I can’t get a job in the clean energy industry. I’m like, okay, cool. How many jobs have you applied for? So I think that’s one thing that’s ingrained when you’re in recruitment is very KPI driven. Like you really kind of get what you get out of it, what you put in and so that’s what I say to candidates like that’s the number you have to put in the exercise like you said, like the reps.

Kathryn: Absolutely. And quantify as you go as you do achievements in your different jobs in your day to day, keep track of those. Write those down, put them on your resume.

Catherine: Yeah, totally and do it as you go.

Kathryn: Yes, yes.

Catherine: So many candidates are like I haven’t written a resume in years and they’re like, I don’t even remember what I’ve accomplished. It’s easy to do it like a diary like a journal like a diary.

Kathryn: You should! Write it down.

Catherine: Alright, well, thank you so much, Kathryn for joining us and telling us all about yourself and RA Capital and I appreciate all you’re doing for the clean energy industry.

Kathryn: Thank you for having me. It’s been a pleasure.