How a Climate Tech Company Embedded its Mission into its Legal Form

Davida Herzl, Founder, Aclima

A micro-case study for Founders from the Startups & Society Initiative.

Aclima measures and analyzes air pollution and greenhouse gases on a hyperlocal-level which helps regulators, policymakers, and environmental advocates better understand and manage emissions and their impacts. When Davida Herzl incorporated Aclima, there were two choices for how she could deliver on her mission: she could start a nonprofit, serve parts of society that lack access to resources, and be beholden to philanthropists, or she could build a business for scale with funding from VCs indifferent to impact.

By the time the company closed its $40M Series B in November 2020, things had changed. Here’s how Aclima put environmental justice on the same level as profits:

1. Embed values into the product and the company from the beginning

Davida wanted to create a business oriented towards all of its stakeholders, not just its investors. She defined the company’s values and put them forward early on, emphasizing how the tech was built in partnership with the communities it was designed to serve. Aclima’s granular data helps show the racial implications of environmental justice.

“If you’re Black in the US you are 3 times more likely to die from exposure to air pollution.” — Davida Herzl

“Understanding how pollution is distributed across the population is an important part of shaping policy interventions,” said Herzl.

2. Prove the technology works before raising funds

Aclima spent years demonstrating their ability to build its technology. “For years we didn’t bring in any investors; we bootstrapped with revenue. It was hard to raise money at the time, and there was a significant risk in bringing on misaligned investors.” Only around 2017 did Aclima start to consider outside capital, and by then, more impact investors active in venture had emerged.

3. Raise from aligned investors who value the mission (Series A)

In June 2018, Herzl closed Aclima’s $24M Series A. The round brought together a group of impact-focused investors, including Radicle Impact (part of Tom Steyer and Kat Taylor’s family office), the Emerson Collective (the organization run by Laurene Powell Jobs), and the former Google CEO Eric Schmidt’s family foundation.

The company then spent 18 months taking its technology to market. In that period, a new legal form emerged: the Public Benefit Corporation.

4. Re-incorporate as a Public Benefit Corporation (Series B)

When Davida was gearing up to raise Aclima’s Series B, she knew she would be bringing on investors that she didn’t know as well as those on the Series A cap table. She wanted to make sure that her investors would get behind the company’s mission, and leaned on the process of re-incorporating as a PBC to filter out investors who weren’t on board.

“We wanted to protect the company and tell investors: you’re signing on to this transition [to a Public Benefit Corporation.] If you’re not comfortable, don’t sign on. If you want to be part of redefining how tech is built to deliver on the promise of those capabilities, you are welcome.”

The transition wasn’t simple. In addition to re-filing the company’s letters of incorporation with the state of Delaware, Davida had to educate the board. Many had questions related to the impact on the company’s exit: were PBCs valued in the same way as C-corps at IPO? Davida and her team leaned on the extensive data showing that public market investors want their investments to deliver on environmental, social and governance dimensions of performance, not just on financial performance. Davida estimated that PBC-related questions added 30 minutes to every diligence meeting with new investors.

“We saw more issues with not doing it and knew it was worth investing the time to transition our legal form. You can be desperate to close the round and move on, but you need to think about yourself in the future, and protect that future self. I knew that a disconnect with my investors at such a fundamental level could be the greatest source of pain and destruction of long-term value.”

Aclima benefitted from good timing: the round closed during the pandemic, when climate justice was rising to the top of the agenda of both investors and the federal government.

PBC now core to Aclima’s GTM strategy

“It’s put us in a place where we can be bolder about our commitments to the communities we are serving. It’s enabled us to make this focus visible, where we previously felt we had to be more conservative. It’s important to us to be an example of how you build a company for the future,” said Herzl.

Herzl shared that Aclima’s new legal structure is an asset to its business, too. Many of its customers are governments, who are mandated to deliver public benefits. Aclima can now credibly speak to mission parity, and even share its PBC charter.

“It gives us a competitive advantage in the sales process. Our clients know we’re in it to help government agencies solve profound societal problems.”

Herzl is particularly excited to share Aclima’s story to show that the decision to incorporate is no longer binary.

“A lot of founders don’t understand the basics of what the legal structure requires of you when you bring a VC on to your cap table. Knowing these tools exist to align you, your investors, and the customers you serve, is powerful for founders. You don’t do this unless your heart and soul are in — there is no balance or separation. Particularly for this next generation of founders, who have been tempered in a recession, a pandemic, and social instability, the ‘why’ is everything.”