Derek Handley: Opposing Tension, Difficult Founder-VC Conversations & Sustainability Investing Fundamentals - E183

· Founder,Podcast,Singapore,Purpose,Podcast Episodes English

As you grow, you start to learn how to hold better conversations with people. For a long time now I've had coaches and, as you grow, and you get through these cycles, you start to develop more skills, more toolkits for ways to confidently have difficult conversations. I think difficult conversations are something that people shy away from, but you have to have more of them to get more comfortable with them. - Derek Handley

Derek Handley is a futurist, entrepreneur and an aspiring civilian astronaut signed up to visit space with Virgin Galactic. Derek created the Aera Foundation in 2014 as a charitable studio catalysing social innovations to reframe the status quo for a sustainable future. Global venture fund Aera VC followed and has been backing global radical climate solutions and frontier breakthroughs for humanity since 2017. Prior to establishing Aera, Derek alongside Sir Richard Branson, was the Founding CEO of The B Team, a non-profit alliance of global business leaders acting as a catalyst for bold dialogue, courageous leadership and brave action toward a fairer, greener and more human economy.

Prior to The B Team, Derek spent 10 years founding and growing early mobile-phone tech company The Hyperfactory, which he built to be a global success and later exited to Meredith Corporation/Time Inc. Returning to New Zealand with his wife and family, Derek founded Wiser Conversations, an online conversation and podcast series helping people ask better questions to develop self-knowledge and purpose in their lives. Wiser programs run at AUT University in Auckland where he is an Adjunct Professor; through workshops for family offices and elite athletes around the world. Derek is currently studying towards a Masters in Religion at Harvard. Previously he studied at MIT, Singularity University and Victoria University of Wellington, New Zealand.

Jeremy Au: (00:30)

Hi Derek. I'm so excited to have you on the show. You are someone who has been passionate about sustainability and making the world truly a better place for all. I’ll love for you to introduce yourself for everybody.

Derek Handley: (00:40)

Thanks, Jeremy. I'm really happy to be here. As you said, my name is Derek. Right now, I'm in Auckland, New Zealand. One of the main things I'm working on at the moment is Aera VC, which is a climate tech sustainability venture fund. And we have just recently this year established ourselves at our base in Singapore, built a team and raising more capital and starting to get much more active in the space across Southeast Asia and around the world.

Jeremy Au: (01:04)

Derek, how did you get started in climate, when did you become passionate about climate tech?

Derek Handley: (01:09)

Climate tech, not so long ago, maybe about five years ago. Sustainability, more broadly, it's pretty much coming on to about over a decade. 2009 was really the moment just after, prior, around the last recession, I got really essentially questioned what contribution I wanted to make in the world. I was in the middle of building a company that was in mobile technology and was working with big brands and consumer brands.

And I was helping them market their goods through technology and through the mobile channel. I started to question, What do I really want to do as a contributor, as an entrepreneur, as a founder or whatever I am or I may end up spending my life doing. I stumbled across bigger questions, bigger problems that became much more interesting to me and I thought were worthy of our time.

And so the environment was one of those – Climate, global warming, inequality, broader sustainability questions which I had started to explore really around 2009.

Jeremy Au: (02:08)

And what kicked off that discovery process for yourself?

Derek Handley: (02:11)

It came from the bottom of the cliff. It came from the bottom of like a dark place of in that space of time, maybe possibly looking at losing the company I was building. Well, not maybe possibly like looking highly probable, at that point. So it's really a question of a response to loss and question of response to identity, a question of if this disappears, this company I've been building for nine years, what does that make me and what do I want to be coming out of it?

And that opened up a space for me to basically question everything and look for different types of answers. As always, when things that are bad, that are happening, that are going on, or things that are shocking or frightening or stressful, there are always positive things that come out of it. And that's the most positive thing that came out of that period for me and forever changed the trajectory of how I spend my time.

Jeremy Au: (03:05)

Tell us more about how you got to that dark spot for everybody to hear and learn from.

Derek Handley: (03:10)

Well, so 2008 and we were building a company that I started in New Zealand out of university, so pretty much straight out of undergrad. Within a few years, got to the US building offices all around the world. We had a development centre in India, we had offices in Hong Kong and Australia and we'd raised a bit of money and we were starting to burn cash as you do when you're growing.

And we were doing that and as you hit the summer of 2008, which was the point where people started worrying this thing is not going well or that things are not going to go well. We were just too slow, just too slow to realise that the world was changing and the cash burn was too high. And you know, I know the subject of this podcast is brave.

We were not brave enough, early enough to look hard at the changes that you need to make when things are turning. And so we took too long. We took the summer and what the Americans call the fall and then it was like September we realised all this is going bad and even that phase I wasn't brave enough to do it.

Probably the first time we ended up with two rounds of layoffs, one in October and then one again before Christmas. Again, just an indication of not really seeing clarity of what you need to do when things turn as a founder and worrying too much about perception or what people think, optics, things like that. So you end up in a corner and if you're burning cash, you haven't made changes and decisions quickly enough and hard enough and cut to the bone.

You end up being forced into a corner and it rapidly gets smaller and smaller and darker and darker.

Jeremy Au: (04:45)

When you talk about that darker and darker dynamic, talk about what it means to have to deal with that from your perspective?

Derek Handley: (04:51)

I think I'd be very different now, obviously. But you're young. I mean, a lot of families are young. So everything's the first time or maybe second time, partly because of the fear of what happens if you don't come out of it, you don't make it. That was frightening. But also for some people, motivating.

As a founder or maybe co-founders, you end up having a smaller and smaller circle of people that you can tell the truth about what's really going on in a certain sense. And you can only have a certain type of conversation with a very certain small group of people. One of the most challenging things when things are going badly is having to be able to hold a position of opposing tension.

So you have to show outwardly and to the team and to the market a sense of confidence, conviction, commitment. And then on the flip side, you have to have a reality sense of how are things really going? What's plan ABCDE? And you have to behave in a sort of like really responsible way, like so the whole thing doesn't collapse and you take care of people because people might lose jobs.

So, you’re juggling multiple scenarios and you have to do that multiple times in the same day, and that is possibly the hardest thing to do as a founder. Like you're showing up in the office or you're trying to, you have to present a sense of confidence while being authentic with the team at the same time, the reality can often be quite different about the options that you're considering, that you can never tell certain people, because if they heard that, they would leave, for example, and then it snowballed.

All these things combined make it really difficult for founders when things are going wrong.

Jeremy Au: (06:21)

So how did you deal with that opposing tension personally? Was that something that you grappled with or was it something that you learnt how to deal with over time?

Derek Handley: (06:30)

I definitely learnt how to deal with all of that a lot better over time through communication, authentic relationships, being able to be comfortable and control in yourself, like giving yourself enough time to process things outside of interacting with others and knowing that that's part of the journey. And I don't think it's part of just being a founder.

It's part of life. Things are…sometimes in front of your kids, you have to portray a certain level of confidence or certain might be afraid of certain things or things aren't going necessarily well, and you have to still kind of keep things together, but still be realistic and communicate and be authentic about what we're feeling.

You do build those muscles as you get older and as you learn that, as you experience things, and then you go through that whole process when you realise there's always a bigger picture and there are always much bigger challenges, there are always much bigger problems that to me become a muscle that I get much, much better at.

And when you get into that space and you float higher and higher up, then it makes you able to deal with the things in a smaller, micro basis. Much, much, at least for me, much more calmly, collectively.

Jeremy Au: (07:36)

As you think about that transition and evolution that you had to have those authentic conversations. How did you learn to have those authentic conversations? Because, on the other hand, you said that those conversations were getting smaller and smaller, or if a smaller group or circle of people that you could trust with the truth, whatever the truth was, capital T or small T. So, how did you handle that?

Derek Handley: (08:02)

As you grow, you start to learn how to hold better conversations with people. For a long time now I've had coaches and, as you grow, and you get through these cycles, you start to develop more skills, more toolkits for ways to confidently have difficult conversations. I think difficult conversations are something that people shy away from, but you have to have more of them to get more comfortable with them.

And they do require kind of a mental preparation thinking about how you're going to handle the situation. And over time, with a commitment to wanting to have them and to experience them, you become able to more and more better handle those kinds of situations.

Jeremy Au: (08:51)

What makes difficult conversations difficult from your perspective?

Derek Handley: (08:56)

It's mostly fear, afraid of what someone else will say, how someone else will feel, how someone else will react, whether they will react badly, whether they'll be angry, disappointed in you, whether it's embarrassing for fear of embarrassing yourself. One of my favourite coaches, when I eventually sold this company, it went well. I left the company very shortly after.

I remember very clearly this conversation, my coach coaching me into it before I told my new boss was at the corporate that we had sold the company to. Fundamentally, there was a number of things that I really clearly remember. One of them was, Do you believe what you're communicating is in the best interests of everybody? Is this coming from an authentic place?

That it's the best for you? It's the best for them, it's the best for the broader collective. If you really confidently believe these things as you enter a conversation and it's with the intention, the purity of intention, then there's not much more you can do. Then you can go in with your own confidence that you're doing the best thing that you think is at that time for everybody.

And then you have to deliver that or experience that conversation the best way you can. And I remember physically preparing myself and saying, before you go in, set, kind of ground yourself physically, put yourself on the floor, like feel the floor run through again. Why do you want to do this? Why is it right for them? Why is this right for you? Sounds like an over engineered production, but I really remember how well it made me feel when I went into the room to say, actually, I think I'm going to move on and leave this company that I've spent ten years building.

And I was expected to stay longer with this other acquiring company. But every way for the whole time, through the conversation, you're like, this feels so solid and so right. This is a very difficult conversation, but I have all the right bricks laid. I've always kept that in my mind as I think about, okay, you can have that conversation.

And often, at the end of the day, people do appreciate it. When you talk and you deal with things head on. At that moment, some people may be very angry or upset about challenging things. In the end, if it's coming from a good place and a place of positive intention, people do reflect and appreciate when you've taken the time to do that because a lot of people avoid that difficult conversation and what happens is a void, you know, there's a void that just appears and that relationship either disappears or freeze. And for me, I'm at least someone who would much prefer to have the difficult conversation then avoid it.

Jeremy Au: (11:26)

That's really interesting and I love that personal learning is when we approach death from a place of the best intention for everybody and yet also grounding the self and that's the best one can do when entering the conversation from there, it’s up to them to react. It's up to everybody else to react, reflect. And yet, you know, it's interesting because there's this dynamic where this progression of learning and you see these conversations are being had or conversations are not being had around you as well.

And now you're kind of on both sides of the table as a founder and now as a VC. So how do you feel are the types of difficult conversations that aren't being had are that you see aren’t being had around you? Because in the first fear, it was you not having those difficult conversations with your team or peers or boss, and now you're working with so many different founders.

So how do you see that process for yourself?

Derek Handley: (12:27)

I'm a relatively new investor. I made my first angel investment in 2011. An eager investment after our exit was like, Boom, let's get going. But you know, very just the traditional like selling a company, you start wanting to back others but with just no art and science just getting into it. I made a few over the next five years, but before really becoming more of a practitioner, I would say five or six years ago.

So and then getting more and more serious about it was setting up a fund and being a VC is a very professional and committed outfit. On this side, I guess the interesting thing is we haven't had a huge amount of experience in this because we haven't had a lot of companies experience this issue since we've started investing as a fund.

But it's always better to have conversations earlier about things that aren't going well and founders think that investors would rather not hear that things are not going well. They would rather not hear that there's certain things they can't figure out or something. And so our goal is just to be alongside them more like peers. And we don't lead rounds, we don't sit on boards, which helps with that kind of stuff, because boards create another level of barrier, in a sense. There's a sense of, oh, now you've got some sort of custodian governance role. You're not necessarily on the same level as a founder…it's just something that's different. I've sat on boards as well, public company boards in New Zealand and whether you think there is or not, there's a new level of separation between the management and the board.

And so our preference is to just be in a continual dialogue with the founders. So you’re like having conversations with friends so that when things are not going well, you sense them and you pick them up better and encourage founders to be more open about the challenges they're having.

Jeremy Au: (14:20)

How do you find that power distance, that gap, translate in terms of communication, in terms of outcomes, in terms of problems from your perspective, because you've been both sides of the table now for some time, how does that play out and how does that feel from your perspective?

Derek Handley: (14:38)

Well, on the other side of the table, you're always a little bit, well, at least in my day, in the early days, was a little bit worried that an investor might lose faith or something if they start to pick at it – Oh, these guys aren't actually that good or they can't figure the way out. And for us, as a relatively new fund, four or five years, we've only done about 20 something investments.

So not many of them have had a long enough time to really have massive problems. So we're still learning. And really for us it's being much more organic in the communication. So one of our sayings is stay on WhatsApp, but stay out of the way. Like if we don't need us, you don't need us. But if you want to chat, we’re on WhatsApp and just making it a much more fluid way of communicating, this is maybe a while ago it was much more structured towards more formal communication forms.

Everything is now getting more and more fluid and that's how we'd prefer to communicate all around. Maybe more people prefer that just in general.

Jeremy Au: (15:34)

What's interesting as well is that you've also chosen to build this obviously on the theme of sustainability. And what's interesting is that, you know, historically you go back ten years ago, sustainability was like, okay, you're a hippy who loves the earth and you're going to be a non-profit. And then the other track of it was if you are a capitalist, especially venture capitalists, you got to be hardcore capitalism, which is about don't care about the earth, just mine the earth and get whatever you need to have extracted.

And if you do care about the earth, just divert it via philanthropy donations and volunteer your own free time, your own capital, whatever it is. But those are two different schools of thought. And so there's this interesting dynamic where you've chosen to bring those two together. How does that feel? Is there still a tension between the sustainability and the capitalism piece, or do you feel it's come together? How does that feel for you in that Venn diagram?

Derek Handley: (16:29)

What I was exposed to most about ten years ago when I started moving to space and was building a non-profit group of leaders, CEOs from all around the world, really big companies and other kinds of thought leaders who are thinking about these questions was exposed to a different way to think about it. And there are lots of different expressions of this.

And they go back to the 1870s, but different ways to describe it - stakeholder capitalism, compassionate capitalism, sustainable finance, social entrepreneurship, impact capitalism, conscious capitalism, all under this broad umbrella, saying there must be a way where business and money and investment is used to achieve social and environmental outcomes while achieving a return. And that's how the world should be.

That's kind of the broader umbrella. And out of that comes things like B corporations, benefit corporations, for purpose corporations and a whole hybrid of things and microfinance. And there's a whole spectrum of making a business that makes money and is sustainable, that does good things all the way to where we are on the spectrum, which is to invest in businesses that you think are going to turn $1 into $100 by solving issues in the world.

And so, the beautiful thing about this is it is a spectrum and you can play across the whole spectrum. And philanthropy has its absolute needs as well. There are many issues and things that will never be solved by business models, and they shouldn't be solved by business models. And that goes all the way from the bottom like aid.

If someone is starving, then they need to be fed all the way up to things like certain types of research that just don't have a business model. But on the other side of the spectrum, you have everything from microfinance all the way through to a climate tech VC. And for me, I'm convinced that anyone with any money, whether it's $100 or 100 billion, could develop a portfolio and an investment approach and a philosophy that invests in this way just have to find the different asset classes across the spectrum that do social environmental good and provide a return.

And equally, I'm convinced that if you want to build a company today, there are more than enough problems – social, equality, environmental climate, and there's more than enough technology to empower you to build a very successful, meaningful company by merging the two. And it's not just climate. It can be anything. But there's so many big problems everywhere that business models can solve.

And that's, to me, again, what I'm deeply committed to over and beyond. Aera VC’s climate and sustainability focus even my own personal kind of angel investing. You know, I look at things that have maybe a different return profile but are still trying to solve some issues. And that, to me, is a generational opportunity for all founders now wanting to build companies like there are ways to find amazing problems that you're going to build a company to solve.

And that's exciting because it gives much more meaning to not just you as a founder, but to the team, investors, your whole stories. It's authentically purposeful.

Jeremy Au: (19:41)

As you think about that authentically purposeful search, especially in the context of investment. How do you triangulate that with a meaningful rate of return? There is a certain commitment that you're making to the partners that has a rate of return, and yet you're also looking for an authentic purpose, as you mentioned, especially in the context of sustainability.

Do you look at it more like we need a certain level of rate of return and therefore within that context we look for sustainability or do you look at more like sustainability and then therefore we should look for rate of return. What's the way that a sustainability investor should approach that heuristic?

Derek Handley: (20:22)

Well, the answer is dependent on the return profile of the investor, and you can find an answer to fit anyone from low yield, 2% a year. I want to invest in water bonds all the way through to where we are, where we want to invest in unicorns. If you just take climate, which is largely our focus, everything in the world right now is putting pressure on solving these issues, which, in short, is reducing CO2 emissions and removing them.

That's basically the net net of it. That's 50 billion tonnes of it goes out every year and it kind of needs to get to roughly zero. So, in there, there are business models everywhere that will destroy the current incumbents that are emitting all the CO2, whether it's a Tesla destroying a GM or the market cap and the value of or whether it's a company that creates an entirely new way to construct buildings or concrete or steel that reduces CO2, or whether it's a company that creates new ways to produce dairy products or meat alternatives that aren't farmed because farming is immensely intensive on CO2 and environmental degradation.

So everywhere you look, there are multi-billion dollar industries that aren’t reacting fast enough to a changing requirement to be carbon neutral or even carbon negative. And anyone who can figure out how to create a substitute for that product that is carbon negative or carbon neutral is going to have, at least, for the next decades, an exponentially growing demand base.

So that's kind of why it meets the intersection. Secondly, you have a huge amount of political pressure, so you have carbon taxes, carbon border taxes like in the EU that cross border taxes where if you want to import commodities and certain types of materials into that region, if they have a higher carbon footprint than what they might get in the EU, you're going to be taxed.

So now there's pricing put onto non carbon efficiency and it'll just get higher and higher and higher. And then you also have finance. So now you have finance giant funds whether it's KKR, BlackRock, Blackstone, all coming at it saying all down the line, everyone needs to be accounting for investing in solving, decarbonising a portfolio. So then it's like a domino where everyone needs to look for those investments, which now starts to fuel the entrepreneurs needing to provide those solutions.

Like it's every angle you look at. The pressure is on to solve this generational problem. That means building massive, massive businesses that will displace incumbents. And so you can do that in a hugely profitable way because incumbents are hugely profitable.

Jeremy Au: (23:19)

Wow. Great for that, actually, very concise explanation about how to think about the heuristic for investors to get into sustainability investing. So on that note, I'd love to ask kind of like the last question here : could you share with us a personal time when you had to be brave?

Derek Handley: (23:38)

Yeah, I'll go in a very different direction. You've set up your own podcast and conversation series. An area that we didn't touch today was - a few years ago, I started a master's in religion. I have a very deep interest in philosophies of life, philosophies of how to live, and frameworks for a broader sense of meaning in the world. April, last year, during the pandemic, as it was really peaking at the beginning and people were getting frightened, I decided to start my own conversation series online as a podcast and kind of like a live chat discussion, almost as a response to the anxiety I was having at the time.

I had held off on doing some of that for a long time in this field of psychology, and I would call it spirituality on how we find meaning in the world and how we understand and navigate it. Because I always kind of felt, well, I'm not really qualified to have these conversations, you know, what's my place to have that?

And I just one day decided I would just email ten people that I really admired, loved their books, and loved the talks and the TED talks. And they just loved the way they thought about the world. And they were either psychologists or authors or spiritual leaders. I said, Look, I'm going to start a conversation series about how to live wisely during a pandemic called Wiser Conversations, would you come on?

And for me, you know, that's courage because it's like, well, no credentials in this department and you're asking some of the most inspirational and thoughtful people in the world to have a chat with you. And of course, the amazing thing is overnight, the first guy was like, Yeah, sure, let's do it.

And I was like, okay, we're in business. That's all it takes sometimes, right? You just have to push through, push send, and the email comes back and you move on.

Jeremy Au: (25:19)

What makes it difficult to press send, from your perspective?

Derek Handley: (25:38)

Because it's a new realm. It's like you're a beginner again, you know, like to talk to people about the biggest questions in life. And these people have written about them and thought about them for a long time and studied them. And you're a student, you're like the grasshopper. And I do love that. I love the beginner's mind becoming beginner again.

But at some point, you look around, you realise maybe I'm not a beginner anymore because I've gone up a few levels. Sometimes it takes a little bit of courage to realise that in yourself you're like, Hang on, I can hold this. I don't think anyone else can tell you that.

You have to figure it out yourself and am I ready to put myself out there? And that's what the pushing send thing is about. I could easily have whipped up a podcast about start-ups and investing and building companies and companies dying because that's like sleepwalking, right? It's like there's nothing to do there that's new in terms of fear, but to do a different type of thing where you've never been in that space, you know, you have the same doubts, like people saying, Oh, what does he think he's doing?

Having these kinds of conversations about wisdom and what it means to live? It's always the same thing when you're growing and you're learning and you're the beginner, and then at some point you have to realise, Oh, I'm going to get out of my shell now. And that first step is like coming out is always a little bit frightening. And then once you do, you build confidence. You're like, I got this, I can do this.

Jeremy Au: (27:06)

That first step. Any reflections on how to take that first step?

Derek Handley: (27:11)

Well, for me, often I overthink it and I take too long. In this instance, in April last year, it was a rare moment where it was much more instinctive. It was like, No, this feels necessary and it feels like I need this, I need to do this. It was more of a feeling driven thing than a thinking driven thing, and I'm more of a thinking driven person than a feeling driven person.

And what I learnt through that was I really need to listen to my feeling instincts more and respond to them, like respond and move to take steps when I feel something. And so the last 18 months I have responded quickly to my gut and my instincts and my feeling aspects than I have to kind of like cerebral intellectualising of things I think different people are different, but if you are an instinctive person, you also might find yourself responding too much like, Oh shit, shouldn’t have done that, should’ve thought about it a bit more. So you've got to find your balance and then make a decision like, okay, feels right, seems right intellectually, I'm pulling the trigger. Often it's just about taking action and doing something. And then once it's out of your hands and once you've done something or asked someone or sent something or made that phone call, you're all of a sudden on your way.

And then it's just about following through and not going back to bed and hiding under the covers.

Jeremy Au: (28:36)

Derek, thank you so much. On that note, I’ll love to wrap up by sharing the three big themes that came out of this.

The first was actually I really loved this theme of actually opposing tension that came up over and over again. I actually, obviously, at this front where you talked about the opposing tension of being a founder, right, of how to manage your own self versus managing conversations outside, how to manage to some extent, I would say the yin and yang of the different dynamics out there. And you shared that not just in a domain of being a founder, but also in the conversations, in terms of being a VC and even just now about being a beginner and a first step so that I love that opposing tension and how in each of those scenarios, you actually shared a little bit about how you took the first step and all of those different dynamics, right, that begin a mindset and how you look beyond that, not just the intellectual, but also how you feel about that and being self-aware and being grounded. So just a strong set of insights there.

The second, of course, was really all of that around difficult conversations, especially in the context of being a founder as well as being a founder of a VC, as well as being a VC with a founder. So having both sides of the table now there's some interesting dynamics around, like you said, the board where there's a governance, a power distance involved with it versus the frank conversations needed to be had about getting out of the way versus is actually helping and figuring out what needs to be done.

And lastly, thank you for sharing your domain expertise on sustainability investing, which is obviously all being put away too by a straw man argument of this, a false dichotomy put out there on one side, and unbridled capitalism and rampant capitalism. So obviously, like you said, there's got to be a better way, which is that middle ground, a path where that's got to be that spectrum where there's a better way of what we currently call sustainability investing. And yet there's also a broader spectrum of social entrepreneurship to B corporations, stakeholder capitalism. And yeah, the crux of it is how do we kind of like do business in a way that's responsible to our communities and society, and I love, not just the high level view, but also, the trends of the future as well as some of the heuristics that you think about as an investor about your financial returns and your responsibility to the community as well. So thank you so much, Derek, for sharing your knowledge today.

Derek Handley: (31:04)

Thanks for having me, Jeremy. It was a lot of fun.