Friends,

Across The Generalist’s two-and-a-half years of operation, we’ve analyzed companies from almost every sector of the economy and disparate geographies. 

We’ve analyzed Irish-American fintechs (Stripe), Taiwanese semiconductor fabricators (TSMC), French luxury conglomerates (LVMH), Austrian energy drink vendors (Red Bull), US defense contractors (Anduril), e-commerce platforms in South Korea (Coupang), and super-apps in Kazakhstan (Kaspi).

We’ve been looking to do a deep dive into a climate company for some time. The sector’s importance, along with its rapid, world-reorganizing growth, makes it one of our era's most compelling business stories. 

Watershed feels like the perfect place to start. The climate enterprise platform serves some of the world’s biggest companies, like Walmart, Airbnb, and BlackRock. As well as helping customers understand their carbon footprint and how to curb it, Watershed makes it easy to invest in cutting-edge carbon removal programs that suck CO2 out of the sky. It’s a compelling package that’s attracted interest from two storied investors: Sequoia’s Michael Moritz and Kleiner Perkins’ John Doerr. 

To understand why these renowned venture capitalists co-led their first investment since Google, jump in:

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Watershed: A Climate Pragmatist

Actionable insights

If you only have a few minutes to spare, here’s what investors, operators, and founders should know about Watershed.

• A climate OS. Companies use Watershed’s platform to measure their carbon footprint, report it to shareholders and governmental agencies, implement reductions over time, and invest in cutting-edge carbon removal programs. It’s a thoughtfully crafted and comprehensive solution that has won over players like Walmart, Stripe, Shopify, and BlackRock. 

• Planetary markets. For a time, investors looked at the green energy revolution with some skepticism. No longer. There is increasing consensus that the next decades will see a radical reorganization of capital that boosts providers like Watershed. The carbon accounting market alone is projected to hit $64 billion by 2030. 

• Good influence. Few companies can boast as impressive an investor base or advisory committee as Watershed. The firm counts venture notables John Doerr and Michael Moritz as backers, alongside vice president Al Gore and Laurene Powell Jobs. A slew of former and current public sector powerbrokers bolster its influence. In an increasingly competitive sector, such ties – and implicit trust – could prove pivotal.

• Extracting emissions. Some of Watershed’s most exciting work comes not in counting emissions but financing removal methods. In conjunction with Frontier, the platform empowers customers to invest in projects like Charm Industrial and Heirloom that use pioneering techniques to suck CO2 out of the atmosphere.

• A rush of rivals. Watershed is not the only firm to recognize the carbon accounting opportunity. Insurgents like Persefoni, Sinai, CarbonChain, and Sweep have all emerged as solutions. The greater threat may come from above: enterprise software megalodons like Microsoft, IBM, and Salesforce have unveiled their own offerings. Watershed will need to keep innovating, and expand beyond its current niche, to fulfill its potential.

In the fall of 2019, Christian Anderson, Taylor Francis, and Avi Itskovich stood in front of a whiteboard, staring at the scrawl: 500 megatons. 

This was it. This was why the three friends had gathered in Anderson’s spare bedroom, the reason they had left their jobs at Stripe to strike out on their own: to find a solution to this problem, the dilemma of 500 million tons of carbon dioxide. What could they build to reduce C02 by that figure every year? 

Understanding the ambitiousness of the goal requires some context. The year Anderson, Francis, and Itskovich paced, debated, and scribbled in front of their whiteboard, carbon dioxide (CO2) emissions crested 37 billion tons. That same year, Brazil’s total CO2 output surpassed 475 million tons. The former colleagues sought to build something with a climate impact felt on a global scale: slashing total emissions by more than 1%, taking a Brazil-and-a-bit out of the atmosphere. 

They gave themselves a deadline. Ten days to come up with a product or company that could make that difference. By the end of the sprint, the trio would start building their best idea.

Four years later, the fruits of that process are evident. Today, Anderson & Company run Watershed, a carbon accounting platform that counts BlackRock, Stripe, Airbnb, Doordash, and Walmart as customers, boasts a $1 billion valuation, and is seen by some as a generational company in the making. The presence of John Doerr and Michael Moritz on the cap table is the clearest indication Watershed is among tech’s anointed few. The last time the legendary Kleiner Perkins and Sequoia rainmakers co-lead a deal was in 1999; the company was Google.

Beyond the impressive names it has attracted, Watershed’s most eye-catching trait is its pragmatism. Though its founders may have started with wide-eyed idealism – 500 megatons – their business is marked by realism, grounded in business logic. In conversation, co-founder Taylor Francis toggles between Watershed’s climate impact and corporate value with almost metronomic regularity: Yes, this is good for the world, but we haven’t forgotten your bottom line. 

In this regard, Watershed bears little resemblance to the asset-heavy green economy darlings of the 2000s and much more to enterprise giants like Salesforce or SAP. If that sounds uninspired, it shouldn’t; both boast centacorn valuations and have become core parts of modern business – smoothers of processes, platforms for others to build upon. The climate revolution needs this corporate infrastructure more than most. 

Reaching that scale will not come easily. Over the past few years, other entrepreneurs have recognized the carbon accounting opportunity, rushing to fill it. While good news for the planet’s health, it means Watershed’s ascendance will be contested. 

Origins: Unforgiving math

When Mauna Loa erupts, the Pacific sky rages orange and pink. Stretched across the Island of Hawaii, the world’s largest active volcano may be 700,000 years old. Over its lifespan, it has been a creature of formidable destruction and awed fascination. In the 1900s, Mauna Loa incinerated local villages; its recent outbursts, including one in 2022, have been much less damaging.

In March of 1958, a young geochemist sat at an observation base on Mauna Loa’s north flank and listened to the earth breathe. Charles David Keeling, just twenty-nine at the time, had garnered support to continue his research into atmospheric carbon dioxide levels. It was a topic few were interested in at the time. Just to make his first measurements, Keeling had constructed a makeshift gas analyzer based on a 1916 journal article; no off-the-shelf options existed.

The first Mauna Loa measurement came in at 313 parts per million, meaning that for every 1 million gas molecules in the atmosphere, 313 were carbon dioxide. That finding alone wasn’t particularly profound – over the decades, other scientists had taken point-in-time samples that noted atmospheric levels. One of Keeling’s advisors had suggested that approach, proposing Keeling return to Mauna Loa after a decade to see how CO2 levels had changed. 

The Scranton native had a different vision. Rather than taking measurements every year or decade, what if he tracked carbon dioxide levels daily? What might a detailed chronicle show? What could it tell us about our planet?

Those questions were answered in the following years. Keeling’s measurements followed a predictable pattern and charted a clear trajectory. On a seasonal basis, CO2 levels rose and fell in conjunction with the flowering and retreat of vegetation. As plants blossomed, they sucked carbon dioxide out of the atmosphere, “breathing in” over verdant months. More alarmingly, though levels varied over the course of a year, Keeling’s data showed an inexorable upward trend. Carbon dioxide levels were inarguably increasing. 

It was a discovery that fundamentally changed the conversation around global warming. The “Keeling Curve” drew attention to the irrefutable evidence, strengthening the link between human behavior and global warming. It is considered by some to be one of the 20th century’s greatest scientific achievements. 

Keeling’s work is also a testament to the importance of accurate measurement. Lord Kelvin – the mathematician who determined true zero temperature for the first time – remarked, “If you cannot measure it, you cannot improve it.”

More than six decades after Keeling started his work in Hawaii, three technologists began their fascination with carbon measurement. Their world was very different than Keeling’s had been, let alone Kelvin’s. By 2019, the Mauna Loa observatory registered CO2 levels of 414.8 ppm – 33% greater than Keeling’s first measurement.  

Christian Anderson, Taylor Francis, and Avi Itskovich may not have known that precise figure when they set out to build a climate company, but they had no doubts about the direction of travel. All had grown up on a planet tilting toward disaster and had developed an early appreciation for the crisis humanity faced. Anderson’s father worked as an environmental lawyer, Itskovich was a keen outdoorsman, and Francis had been particularly moved by Al Gore’s documentary, An Inconvenient Truth, which he’d seen as a middle schooler.

It was another interest – technology – that introduced the trio. In 2013, Christian Anderson joined fintech Stripe as an engineer. The next year, Itskovich and Francis followed. Over the next five years, the operators would get to know each other, learning their relative strengths and weaknesses. Backpacking trips strengthened their bond and revealed the importance they placed on time outside and the preservation of the planet. Discussions shared at campsites followed them to San Francisco – and stoked a desire to do more. 

The timing of that growing interest was no coincidence. All were familiar with what Francis termed the “unforgiving math” of the climate crisis. In particular, Francis referred to reaching net-zero emissions by 2050, a benchmark that should limit global warming to 1.5 degrees Celsius and avoid some of climate change’s most devastating impact. As part of this goal, organizations like the Intergovernmental Panel on Climate Change (IPCC) have urged the world to halve emissions by 2030. That target made the 2020s feel especially important. “We felt like this was the decade to work on climate,” Francis said. 

It took some time for the friends to set out on their own, especially because they hadn’t yet found a business idea. Francis was the first to leave Stripe, departing in the spring of 2019 and spending much of his summer interviewing climate experts to learn about the sector. Itskovich and Anderson left later in the year. 

Those final few months of employment proved pivotal in Anderson’s case. A couple of years earlier, Patrick and John Collison started pushing Stripe toward carbon neutrality. In 2019, Anderson was given a chance to further the company’s climate commitment, outlining the new approach in an August blog post, “Decrement carbon.” In it, Anderson stated Stripe’s promise to pay for the direct removal and long-term sequestration of carbon dioxide “at any available price.” Stripe didn’t just want to be carbon neutral; it wanted to be net-negative. To meet that goal, the company committed to spending twice as much on sequestration as offsets, with a minimum of $1 million per year. In the words of one former Department of Energy official, it was a “breathtaking and audacious” initiative. Stripe’s exceptional work in the space over the past few years demonstrates it was just the beginning. 

Spearheading Stripe’s negative-emissions policy proved influential for Anderson. The engineer saw the immaturity of the climate accountability space firsthand. Stripe endured significant pain to understand and alleviate its footprint. What chance did less committed or technologically savvy companies have? 

At the same that time Anderson observed the scarcity of available tools, he saw the obvious demand for them. Since Stripe had established itself as an early-mover on climate, other companies reached out to the team to understand the process they’d gone through. It became increasingly clear that other enterprises wanted to follow Stripe’s lead; they just didn’t know how. 

In autumn 2019, Anderson officially left Stripe. Within days, he stood before a whiteboard, looking at a number: 500 megatons. 

Over their ten-day sprint, Anderson, Itskovich, and Francis looked for an idea that could move the needle by that figure. They’d spend their days researching different approaches and then convene in front of the whiteboard to map out each one’s potential impact. “We thought about advocacy ideas, consumer ideas,” Francis said. “And the one where the math made the most sense was B2B.” 

The logic was simple, according to Francis: “Most of the carbon in the atmosphere comes from a company that made a choice. And those companies are blind to these choices – you can’t manage what you can’t measure. [We decided] to convert all of the pressure companies were going to feel from regulators and investors and customers…and build software that helps them measure, reduce, and report their emissions.”

The plan was set. Build a software platform and marketplace that the world’s most influential companies would use to understand and reduce their footprint. Watershed was officially born. 

Keep reading

Puzzler

Thirty white horses on a red hill. First they champ. Then they stamp. Then they stand still. What are they?

Only Shashwat N, Morihiko Y, and Sevde A solved last week’s particularly challenging riddle:

What is higher without a head than with one?

The answer? A pillow. Very well played to all that found it, and wishing everyone a wonderful, restful day.

Until next time,

Mario