December was an incredibly busy month, culminating in the
completion of two significant milestones for the firm. We made the
final investment for Thin Line Capital Fund I, completing its
portfolio. We also successfully completed fundraising for Thin Line
Capital Fund II, reaching its final close.
The final investment in the Fund I portfolio is a company called
XGS Energy. I have been following geothermal energy since 2007 when I
was living in Australia. Geothermal, I believe, will be the next
exciting boom in renewable energy production, following the explosive
growth we’ve seen in wind, solar, and energy storage. Geothermal has
the potential to provide firmed (or dispatchable) carbon free energy,
solving the variability problems that wind and solar have. Both wind
and solar have gone from a few gigawatts of global capacity, to being
around a terawatt, each, of global installed capacity. Geothermal today
is around 20 GW, which is where solar was in 2008 (only 16 years
ago!). I fully expect a similar rise in geothermal production, and I
expect XGS to be a significant player in that.
I’ve always positioned Thin Line Capital as a firm with
long-standing roots in the clean energy and sustainability industry. I
started my cleantech career in 1994, when I published “Recovery of Thermomechanical Exergy from Cryofuels”, originally at the World Hydrogen Energy Conference when I was an undergrad with IESVic at the University of Victoria. My career led through hybrid electric vehicle development, fuel cell development, to MIT, which ultimately led me to Southern California, to the home of the initial EV1 development. As the first cleantech boom was ignited I was with a concentrated PV company when we raised our first capital (thank you Nth Power and Rockport); I joined an Australian VC firm and invested alongside KPCB and Khosla into Ausra,
a concentrated solar company. With the collapse of the cleantech boom,
I returned to Pasadena and joined the XPRIZE Foundation to help launch
an Energy XPRIZE.
Following this, for a period of over twelve years, I was able to
start several companies at Idealab, including Energy Cache, Energy
Vault, and Heliogen. I was the CEO of two of these, and had terrific
support from Idealab, Bill Gates, Claremont Creek, and a number of other
investors. Finally, around 2017 (see my logo), I first started talking
to people about the resurgence of cleantech (thank you Howard
Morgan!). Overcoming the stigma from the 2006-2008 industry failures,
then getting a final close of Fund I in the middle of Covid was a real
challenge. And, while raising a first fund is difficult, continuing to
raise funds, demonstrating the viability of the investment thesis, and
the long term viability of the firm, is the real name of the game. With
this success, I thought that this was a good time to look back on
lessons learned through the execution of Fund I.
Lessons Learned
While putting a lot of money into a company that fails isn’t
great, putting too little money into a company that takes off is
arguably worse. Discipline matters, and sticking to an investment
thesis is key. Randomly approaching different opportunities in an ad
hoc manner, with no consideration of stage, check size, or valuation, is
a terrible way to hedge risk and develop a structured portfolio.
Investing in picks and shovels – into companies with a low
capex solution supporting a fast growing vertical – is a strong strategy
for returns.
A frustrating gap of many clean energy companies is
the need to use venture dollars, or rely on government grants, to build
“first of a kind” projects. Given our investment capacity, companies
managing market risk rather than technology risk have been a much better
fit for Thin Line Capital’s seed-stage funds. Of course, remaining
flexible for the occasional exciting exception is important.
Seed entrepreneurs can provide disproportionate outcomes if given the right mentorship and support.
Seed stage companies all have “holes” – they wouldn’t be seed-stage
without them. However, by recognizing which holes are fixable, and
which are catastrophic, makes all the difference. Investing in those
companies where I can provide specific expertise to help fill those
holes provides me with an enormous advantage.
Who you invest with can matter almost as much as who you invest in.
Partnerships matter, and we’ve striven to nurture those with
world-class coinvestors. I’m pleased to say that we’ve partnered with
certain investors multiple times, validating our confidence in them, and
their confidence in Thin Line.
Being a startup founder is difficult, stressful, uncertain, and lonely. One
of the strengths of Thin Line Capital that I try to emphasize is my own
experience as a repeat founder and CEO. A founder is limited in who
they can speak with on the challenges of a company, and I think the
founders I work with would agree that the greatest strength we bring is
our ability to help them plan a path forward.
However, given that, it’s important to remember:
The founder is driving the company; the investor is supporting. Even
though many of my companies have navigated through multiple crises and
successes (in just the last year!), we must never lose sight of the fact
that they are in driver’s seat, with all of the responsibilities which
come from sitting in that chair. At best, as the investor, I’m in the
passenger seat holding the map. It’s critical to empower founders with
the responsibility and resources to make the right calls.
I have been incredibly privileged to work with the companies that
formed the portfolio for Fund I. I am greatly appreciative of the LPs
who have chosen to back Thin Line Capital (both Fund I and Fund II). I
am now setting my sights to finding extraordinary founders building
extraordinary companies for Fund II, and I look forward to whoever I may
partner with along the way!
Aaron Fyke, Founder and Managing Partner
Thin Line Capital
