The following interview is a conversation we had with Kentaro Kawamori, CEO of Persefoni, on our podcast Category Visionaries. You can view the full episode here: $114M Raised to Build the Climate Disclosure & Carbon
Kentaro Kawamori
It’s great to be with you. Thanks for having me today.
Brett
Yeah, no problem. So before we begin talking about what you’re building there, could we just start with a quick summary of who you are and a bit more about your background? Yes.
Kentaro Kawamori
Well, I am an entrepreneur. I’m a software guy and a dad, husband, all those things. At the same time. I started my career, oddly enough, in esports way before people were making a million bucks and you’re playing games for us. That was the very beginning of the industry. But that was really the beginning of my journey when I started working in big online digital distributed business models, eventually made my way working primarily in big enterprise software companies like VMware, Red Hats and the Partner Channel, Microsoft, so on and so forth. And then eventually found myself after a stint doing strategy consulting at Accenture, doing big digital transformation work, and ended up working for one of my customers, which was Chesapeake Energy, very large natural gas and oil producer in the Fortune 500. And that’s where I took the gig of Chief Digital Officer. And that was a really pivotal moment in my career, one, because it was sort of the beginning of my entrepreneurial journey where I met my co founding team and many of my investors.
Kentaro Kawamori
But it was also where we discovered the big challenge that we’re solving today with Persefoni around carbon accounting and climate management tools.
Brett
And when you were growing up, did you have any hint that you’d eventually want to do something in climate or did that just really evolve throughout your career?
Kentaro Kawamori
Indirectly, for sure. We certainly didn’t think about it as climate at the time. But I was born in Japan and then grew up in Germany, and Germany, as you might know, is a huge sustainability oriented country and culture longtime global leader on the global stage of renewable energy production. One of the most prolific producers of solar energy, for example. Today, of course, much different energy discussion thanks to the natural gas crisis and the Russia situation. But we grew up in a household that was in a small farming community in central Germany, and sustainability was just kind of the core of everything you did in a community like that. Especially in post World War II Germany, sustainability was just synonymous with scarcity, and it was about resource preservation and reuse and what we call circularity today in the industry. And so we grew up walking the woods every day and hanging out on the farms.
Kentaro Kawamori
And for us, again, we didn’t necessarily think about that as sustainability or climate work. It was just how were raised. And so as time went on, I’ve always been a very passionate environmentalist. And one day when I got the job offer for working at an oil and gas company, that was a pretty pivotal and seminal moment in my career and in my life where I realized if I was ever going to be able to do any work or be able to orient my career in technology, especially towards the cause, then understanding the big emissions problem from the inside out would be a critical part of that journey.
Brett
Nice. That’s awesome. And two questions we like to ask just to better understand what makes you tick as a Founder, what CEO do you admire the most and what do you admire about them?
Kentaro Kawamori
Most admired CEOs are Jeff Bezos, Elon Musk, and Steve Jobs. I’m joking. You said specifically I shouldn’t say that, so I had to just jab you there a little bit. Of course, all still great CEOs. One of my favorites to follow over the last few years has been Eric. You on at Zoom. I don’t know Eric personally, though. Interestingly enough, he dropped me a note after one of our fundraising announcements a couple of years ago out of the blue. Just a super kind and nice guy and offered to be helpful along the way. I love hearing him talk. I love his philosophy on things. He’s just such an even keeled, long term visionary. And what he did in a very established and old thinking company and in a category that desperately needed disruption in the face of people pushing back and telling him his idea was stupid and was never going to work is such a great story of perseverance and vision throughout that.
Kentaro Kawamori
And I just love how humble and how even keel he is, which is sort of very antithetical to the huge bravado of many Silicon Valley CEOs. He’s definitely one of my favorites over the last few years.
Brett
Nice. That’s such a good call out. And what about books? What book would you say has had the greatest impact on you? And this can be a business book or it can also be a personal book.
Kentaro Kawamori
One of my all time favorites, and I’m really happy to see him return to the home of Disney is Bob Iger’s Ride of a Lifetime, which is his accounting of his time as CEO of Disney during his first stint, which he’s just now officially returned to that job recently and is such a one, great corporate history of Disney, but two, just a fascinating recounting of him turning a very old company from a traditional media company. And a parts company to a very technology driven streaming company today. But probably also one of the best examples of how to use MNA and strategic thinking and long term vision to transform a company. He’s largely regarded today as maybe the greatest acquirer of all time, of companies between Marvel and Lucasfilms and many others. So, yeah, highly recommend that book if you haven’t read it.
Brett
Nice. Yeah, I read that. I followed him quite a bit. There were some really cool videos when he officially announced he was coming back. I don’t know if you saw those, but it was him walking with his wife and security, just walking around Disneyland. And you can tell the amount of power and influence that guy had was pretty impressive. It looked like Tom Brady entering the field. I see that.
Kentaro Kawamori
But I will definitely check it out now. Nice.
Brett
Yeah, it’s really good. I don’t know if you listen to the all in podcast, but how they were describing Bob Iger is that he’s just a deal junkie. And if you go through the book, it’s just deal after deal. And that’s their theory about why he had to come back, is he just can’t stay away from doing deals. That’s all he knows, and that’s what.
Kentaro Kawamori
He loves to do. I can relate. The deal making is such a great activity, and the adrenaline that comes with that and the astounding thing with him is just the track record of successful deals. I mean, most companies or people that do that amount of deals, at that scale, you’re lucky if you have a 50% success track record. But doing multiple transformative ones in such a short succession of time is just astounding.
Brett
Yeah, absolutely. Now, let’s switch gears here a bit and talk about what you’re building today. So can we just start with the origin story?
Kentaro Kawamori
Yes. So it really comes back to the point in my career at Chesapeake Energy that I was describing where I was responsible for the It and digital innovation teams. And along the way, I learned about this program called the Greenhouse Gas Reporting Program that the EPA had enacted in 2011. And it regulates about 17 distinct industries, all in high industrials, high emission sort of categories. And during the Obama administration, the EPA basically said, if you are in one of these 17 subcategories of industries, which included oil and gas and various subcategories of that, then you must do a form of what’s called carbon accounting, and then you must disclose what your emissions are from those activities. And were subject to providing such accounting and such disclosures, which made us one of a very small number of companies and industries in the world that was doing any form of this, especially on a regulated fashion.
Kentaro Kawamori
And you think about providing the federal government or any regulator any sort of disclosure, especially one that involves complex math. You would hope that there’s sort of good systems and audits and systems of record to be able to do that. Well, even to this day, the vast majority of companies do that with spreadsheets, which one is of course phenomenally inefficient, but two is quite concerning if you think about that from a data accuracy and reliability and trust perspective. And so quite literally I was a professional digital transformer. You could say that’s what folks paid me to do when I was a consultant. It just screams to be a space that was ripe for disruption. And then really we started seeing the early signs of the market pressures and the macro creating a category and creating a market here. That was when this shifted from being an environmental agenda and a pollution oriented agenda only to investors perking up and saying our stakeholders care about this topic and our stakeholders want more transparency into the emissions profiles of companies.
Kentaro Kawamori
And that really manifested itself for the oil and gas industry by large asset managers, specifically public asset managers thinking of pension fund administrators like State Street and BlackRock and Fidelity started sort of pushing out into the market in 2018, 2019 and really building some muscle and learning. If were to go out to the market and ask everybody to calculate their carbon footprint and disclose it, what would that look like? How do we do that? And so we started seeing some early pressures of that. And it was towards the back part of 2019 when my co-founders and I really formed thesis and said, well, if this is happening now, it’s just the first of what will be a cascading set of domino. Effects that first manifests itself institutional investors asking for these things, and that ultimately will manifest itself into regulators stepping in and saying there has to be frameworks and standards around this, which I know you’re a big bitcoin guy, is almost exactly corollary to what’s happened in Crypto in the last few years.
Kentaro Kawamori
Regulators tend to step in when investors and capital markets start forming around these sort of things and eventually especially the SEC steps in and make great frameworks and reporting disclosures around those things. And our thesis was basically we would see carbon footprint disclosure requests become a securities regulator and financial regulator mandated disclosure agenda item. And we started the company in January 2020. And a mere days after reincorporated the company, larry Fink of BlackRock came out with his annual CEO letter and that was basically a big seminal moment in the ESG and climate markets to date where he basically said climate risk is financial risk. And it was really the start of what’s been a pretty worldwide growth in climate tech over the last three years.
Brett
He’s going to be your biggest unpaid spokesperson, right? I feel like he is just hammering this ESG message out into the world. He is.
Kentaro Kawamori
And it’s really interesting, he’s now caught in the middle. He’s getting sort of assaulted from both sides, far left and the far right. One is saying you’re not doing enough and the other is saying you’re doing too much. But yeah, Larry is without a doubt one of the best advocates for this topic and he’s doing it exactly the right way. He looks at it from a fiduciary standpoint. He’s not, whatever people are saying, trying to pursue some sort of woke agenda as it’s being categorized by some. He’s saying my thesis is that the science shows climate transition is going to destroy economic value for many industries and many companies, whether that’s a fire burning the vineyards in California, a hurricane shutting down the platform for an oil and gas company, one of 100 other climate related events that will disrupt business. And we have to create a level of muscle within corporations that prepares them for resiliency and to preserve economic and investor value.
Kentaro Kawamori
That’s his job, right? He’s a fiduciary for something like almost $10 trillion in capital at this point, yeah. That’s insane.
Brett
Now let’s talk about the actual problem then. So if you are speaking to customers, how do they articulate the problem, the pain point that you solve, and then how do they articulate the benefits that they get using the platform?
Kentaro Kawamori
The core of our product is a carbon accounting system. And think of that very similar to what financial accounting does. It takes in a wide variety of data sources and financial accounting that could be inventory sold, inventory held, sales process, so and so forth. And ultimately what pops out is a Gap compliance cash or accrual basis number that tells you essentially how much money do you have, how much money did you make, so and so forth. Same exact concept for carbon accounting. There’s a methodology called the Greenhouse Gas Protocol. You can think of that like Gap, and our system of records and accounting platform has codified that very similar to what SAP oracle do for financial accounting. And so if you’re a company and you’re trying to understand what your carbon footprint is, you have to understand the carbon footprint from a huge swath of activity, everything from the electricity that you use in your buildings to the air travel that you do as an employee base, to the food that you cater into the offices.
Kentaro Kawamori
All of it comes with a carbon footprint. So we take in all of those quite literally, almost every single possible type of data source within a company and are able to turn that through the carbon accounting methodologies into verifiable and auditable. Carbon footprint calculations that ultimately are used either in disclosures or reporting. What it is that could be used for investor reporting is generally the most frequent use case today. An investor asks a company and says, what’s your carbon footprint? I need you to disclose this because I’m trying to disclose this to somebody. And then secondly, of course, there’s been a huge proliferation of net zero commitments. Companies that want to reduce their carbon footprint ultimately get to net zero or carbon neutrality. And in order to do that, of course, you have to know how much you’re emitting in the first place and where it’s coming from.
Kentaro Kawamori
And so really, those are the two primary use cases, is disclosure and actually decarbonization management.
Brett
And when it comes to gathering that data, are you also gathering it from the company’s partners and service providers? For example, on my end, I’m an investor and advisor in a bitcoin mining company that is having some issues in regards to the impact it’s having on the climate. And we embarked on this journey and one of the things that we had to do was go and get suppliers to provide us data. The suppliers were based in China and they said, no chance we’re giving you any of this information. So do you have to deal with that? Where you have to convince suppliers and people you work with to provide that data? Or is it separate and is that not data that you collect?
Kentaro Kawamori
You can and the ideal scenario is that suppliers are giving you data. But to your point, if you look at that at scale, the only companies that are going to be successful getting a very granular level of data from a wide set of suppliers are the most powerful supply chains in the world. So think Fortune 100 companies and first you have to have the wherewithal to know what to ask, where to ask for what to do with it. And then you have to have the economic power and prowess to be able to force a supplier to get this to you. 99.9% of the rest of the world isn’t going to be able to do that. So, yes, we do that. Where companies can and want to do that, though they’re the extreme minority for just the practical reasons that limit that. The accounting methodology was designed for being able to work in this scenario because it’s just expected and designed to understand that not every supplier is going to supply, and in many cases, the supplier actually can’t supply it.
Kentaro Kawamori
Because let’s say you’re a small equipment manufacturer in China. Maybe you have a few dozen employees and you make some niche sort of part, probably don’t really have any data. You don’t run it systems. You’re largely a paper based company. And so supplying the data might literally be impossible because it doesn’t exist in a digital format. And so accounting methodology provides for various levels of proxy calculations, estimations and actual calculations. And the guidance basically is that you should use the best data that’s available to you. In the use case you’re describing, I actually know quite well because one of the leaders in bitcoin mining reached out to us about this exact scenario and went quite deep on that topic.
Brett
Nice. That’s super interesting. And can you give us an idea of the type of traction and adoption that you’re seeing with customers? So just any numbers that you’re okay with sharing?
Kentaro Kawamori
Yeah, it was a pretty massive 2022 for us. So we started the company in 2021. That was really close to our R and D 2022. We really was finding product market fit and went into our beta phase, and we had about a dozen customers. At the beginning of 2023, january 2022, went into general availability of the platform, and today, at the beginning of 2023, we’ve got over 200 customers and anticipate being probably two to three times that size by the end of the year. So it was absolutely explosive growth, growing from about a dozen customers at the beginning of 22 to over 200 now. We expect, like I said, sort of a two to three X growth this year.
Brett
And I think all of your funding rounds were done in one year, is that correct? So you raised the 114,000,000 or over that just in 2021.
Kentaro Kawamori
It was a pretty brutal 2021 for me, fundraising. So yeah, we did a convertible note structured seed round in 2021. We had an unexpected opportunity to raise our Series A a little bit earlier than anticipated. That was in April of 21. Just a few months later we had an opportunity to preempt our Series B. Then shortly thereafter we had an opportunity to extend that Series B with another really great investor. So yes, 2021 was basically just a perpetual fundraise for me, which was great timing, and we’ve been extremely fortunate to have a really strong set of investors around the table with us.
Brett
And are those crossover funds like is that Tiger Global and CO2. That led back? Whenever I see the $100 million Series B, that’s kind of fu money status, and I see that driving or being driven a lot from those crossover funds.
Kentaro Kawamori
We have zero crossover funds. I was very intentional not to take capital from crossover funds or Silicon Valley software weighted funds for various reasons. So our biggest investor is TPG, a large private equity firm which has a dedicated ESG and climate investing platform, which is where our capital came from. We have other very climate and energy tech related investors like Prelude Ventures, the Rice Investment Group, which has a longer history in energy transition at this juncture, but we also have a really great roster of CBCS on our cap table. So Bain and Company is a really great investor and partner of ours, EDF, which is the largest utility and operator of nuclear and renewable energy facilities out of France. And in Europe we have SMBC, which is one of the mega banks in Japan, and several others.
Brett
I think our listeners would be angry at me if I didn’t ask. So can you just expand on why you didn’t want to have the typical Silicon Valley investors on the cap table or have them as your investors.
Kentaro Kawamori
Yeah, a few reasons. So I’ll say the fundraising in 2021 environment. When were in 2021, I was sort of already preaching and I think people were sort of tired of hearing me say it at the time, that were in a massive run up of hype and bubble. One of my favorite podcasts is Harry Stebbings 20 BC, which I’m guessing you may listen to occasionally here and there as well. Harry always says when it comes to fundraising, you play the game that’s on the field. And that’s kind of how we looked at 2021. And what we wanted was very long term weighted, intelligent investors on our category. And so number one, Silicon Valley investors in 21 were extremely under educated on climate tech and on our category specifically. So when our series B was preempted, it was because Prelude Ventures came to us. They’d had this thesis for many years, but the market timing hadn’t been right and they hadn’t found a management team that they also thought was the right one for the right time.
Kentaro Kawamori
And so the last thing I want to do as a Founder and CEO is spend my time educating my investors on where the market’s heading. I want my investors to be able to help educate me. So almost the exact reverse, right? And if I was starting an infrastructure software company, for example, then I would want to go to Andreessen, for example, because they are probably the best infrastructure software investing team on the planet. But that was a very huge driver. And frankly, the crossover fund capital, I think there’s a great place for it. I think there’s a lot of entrepreneurs that were really smart and should have raised capital from funds like that. But if you look at the track record of those funds just sort of wantingly deploying capital across a huge swath and creating really the first broad scale venture index, that was always going to be a highly volatile game.
Kentaro Kawamori
There’s a good chance that I think that recovers over the next several years. But taking 50% losses in a year, that’s a really dangerous proposition for an entrepreneur to have an investor on the cap table that’s going to go through that sort of volatility, because that’s where a lot of weirdness and board disruption happens, and we certainly never wanted to undertake that.
Brett
Makes sense. Super smart. Now you’ve said it a few times, my favorite word category, and I think you even said something about creating a category there. So let’s talk about that. What are your views when it comes to category creation? Is this in fact a totally new category that’s being created or is this just reimagining and redefining an existing established market category?
Kentaro Kawamori
Yeah, it’s one of my favorite topics and I had a conversation with somebody the other day and it was Andrew Chen just did this really great book on network effects and it’s about time somebody did a great book on category creation. So maybe that’s you, Brett, because we need people to be thinking about this a bit more specifically. So for our category of carbon accounting and climate software broadly, I would say the solution category was not new. So carbon accounting has existed in consulting formats for a couple of decades now, but hyper, hyper niche, very tiny market. And there had been two previous attempts to build software for this space and the market timing was just too early. You just couldn’t scale economically because the buyers just weren’t there. And out of the second time, this is sort of in the early 2010s, there’s a couple of really small niche software companies that actually were able to survive up until this boom.
Kentaro Kawamori
Both of those companies ended up selling over the last few years because they were sort of the early first gen, really legacy tech and really couldn’t scale into the new needs of it. And so from that perspective, I would say the solution category wasn’t created. I think what was created was the product category, which is modern SaaS climate accounting software. And so I would say us, and probably two, maybe three companies you could say were really the pioneers. All of us started our companies within the same kind of 2346 month period. Yeah, a very classic category creation moment. When you look at it from that.
Brett
Perspective and from day one, when you started this, did you think about category creation? Was that idea implanted in your brain or did it just kind of naturally evolve that way as you brought this to market?
Kentaro Kawamori
It was in the very first pitch that I did to my very first investors. I said, we’re either going to be phenomenally right or we’re going to be phenomenally wrong. On this market timing, there’s not going to be a whole lot in between. And that was our pitch on day one and that has been our pitch in every fundraise in between. And in the meanwhile, in the broader investment market, and I don’t mean venture investors investing in the business, I mean the investors that are creating this critical event and buying pressure for our customers and the regulators that are creating the frameworks that are forcing companies to disclose these things, thankfully have created the market as we predicted. So the thing I always talk about with our team, and even externally at times, is when I look at how close our founding thesis was to now, we’ve just started year four of our business, it is remarkable how little that’s changed.
Kentaro Kawamori
And I’ve sat on several startup boards. This is my second venture backed startup, I just sold my first one to a Baining company. And our thesis has remained remarkably the same, which has always been predicated around this category creation moment.
Brett
So what was it like for you then that would you say was like the day after you launched, larry Think had his first letter come out about ESG? Were you just popping champagne, going crazy? What was that like? That must have been major validation for.
Kentaro Kawamori
The thesis that you had definitely not popping champagne, since I don’t tolerate alcohol very well and the worst hungover guy in the world. And one of the things that people always tell me is I’m terrible at celebrating victories. I just kind of view it as a point on the scorecard and move on to the next thing. So were certainly elated. We were certainly super excited, but it really didn’t change much. I would say, if anything, it was a little bit of a surprise because we didn’t expect to see such a major moment that soon we thought it was probably going to be twelve to 24 months until we would see some sort of critical market event like that. But it provided the perfect amount of pressure for us to continue to move as fast as humanly possible, and that were on the right track.
Brett
All right, so no champagne, but hopefully slamming some wheat grass shops. There you go.
Kentaro Kawamori
That’s definitely more style.
Brett
Perfect. Now, what about challenges in terms of go to market? So I’m sure there would be many on this list, but if we had to pick one, what would you say is the greatest go to market challenge and how do you overcome it?
Kentaro Kawamori
Man, I would say the greatest challenge there, I would think, would be the most common challenge that any category creating company faces, which is education in the market. And I love the Gartner hype cycle because I found it is so true throughout my whole career, whether I was working in digital transformation or I’ve been a big blockchain and DLT and Web Three guy like you for some time. You go through this initial period of hype, and the companies that are most successful are also the companies that go to market and educate the market and help shape and form the market at the same time. Because people either have such massive misconceptions about what they need, what they want, what the technology can do, what it should do. And so when you’re building a new product in a new category, in a new discipline, going through that first education cycle, that’s an enormously challenging thing.
Kentaro Kawamori
And one of the things I always coach our go to market and our sales and our marketing teams is that when you’re in the early part of a hype cycle, the customer base and the market are saying a whole lot of things, but they don’t even know what they’re asking for most of the time. And they may be asking for one thing when they need an entirely different thing, and it’s because everybody’s sort of speaking a different language until that has normalized. And I saw this also in 2012, 2013, I was working infrastructure. Software World was starting to move from data centers into the cloud, and that’s. Remarkable. I look at this and it’s the same exact pattern then as it is now. You just have to go through the cycle and the companies that can educate their customers and provide the confidence of this is what you need, this is how you do it, this is how we get it done, this is how the technology works, this is how you integrate it, tend to be the winners.
Kentaro Kawamori
And it’s something we talk about often in our businesses. How do you make the complex simple? And boy, there is nothing harder than making something complex at least seem simple, because you generally can’t make it simple, but you have to make it seem simple for the user. Yeah, absolutely.
Brett
All right, last question here for you. Let’s zoom out into the future. What would you say is the three year vision for the company? What does it look like by 2026?
Kentaro Kawamori
Next three years are really pivotal in our space, with a whole bunch of the biggest financial and securities regulators around the world releasing mandated climate disclosure frameworks. So the SEC is finalizing theirs. It’ll be published in April. The EU’s climate disclosure regulation starts going into effect in January 1, 2024. So less than twelve months from now, and then many other jurisdictions around the world, from Singapore to Australia, the list goes on and on, are doing the same thing over the next three years. So the vision for us is to become one of the most prolific and the most trusted name in terms of transparency, in terms of data quality, all of the things that really engender trust for our customers, stakeholders. That’s really what we want to be known as, and we want to make that journey as easy as possible for them. I always give the analogy that imagine the 6000 pages of the IRS tax code and if you didn’t have TurboTax to help you navigate through that’s what we want to help our customers do, is massively simplify that journey for us as a company.
Kentaro Kawamori
Ultimately, we always built Persefoni to be a long standing, successful company in its own right. And we certainly want to see Persefoni potentially be one of the first, if not the first, standalone successful climate software company in the public markets at some point. Amazing.
Brett
I love it. All right, unfortunately, we are up on time, so we’re going to have to wrap for today. Before we do, if people want to follow along with their journey, as you continue to build, where’s the best place for them to go?
Kentaro Kawamori
persefoni.com. Anything you could possibly want, you can find there.
Brett
Awesome. Thanks so much for taking the time to talk about what you’re building and share this vision. This is all super exciting and hope to have you back in a couple.
Kentaro Kawamori
Of years to talk about all the progress. Thanks for having me, Brett.
Brett
All right, good touch.
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