Ep 5 - Merit Valdsalu - Tokenization and Impact

Introduction: 

Hello, everyone. Welcome to ESG in VC podcast, where we try to dive into ESG-related topics, exploring how investors, regulators, and founders try to build a more sustainable and inclusive society. I'm your host Oksana Stowe and today we will hear from Merit Valdsalu. Merit is the CEO and co-founder of Single.Earth, an Estonian start-up tokenizing the world's nature to save it.

She was one of the early employees at Pipedrive as the Head of Localization. And now she's combining two of her biggest passions, innovative tech and the environment at Single.Earth. Let's jump right in. 

Oksana: 

Hi, Merit. Really good to have you with us. You are doing something quite radically new trying to digitize and reward responsible behavior, but it would be great to get a little bit of a background, how you came up with this idea and why you felt now is the right time to tackle it.

Merit: 

Yes. Hello, thank you so much first of all, and for having me, so exciting to be here. So very happy to share the Single.Earth story. So how it actually started? 

Well, it was about two years ago now, more than two years ago even, when me and my co-founder, we looked around us and we saw a lot of intensive forestry happening in our home country, Estonia.

So we have these beautiful old forests. There are now cut down for timber and this is disturbing us and a lot of people. So we started looking into the root causes of it. At the same time, we also had a very cool hackathon happening as well. We have a lot of hackathons here in Estonia, and one was specifically focusing on the future of wood.

So we decided to go there and started investigating. So why do we have so much forest destruction and is there anything that we could do about it? And we realized that it actually always starts from the business models. Today, the only way for landowners to earn any money from their natural resources is by selling raw materials.

And this is what they do. And this actually makes sense, like looking at this from their perspective. So if we want to make a change, we need to be able to pay them for doing something else and that something else in our case is keeping forests growing and then letting nature be. 

So we basically understood that this is what we need to achieve and we also understood that it's not just Estonia, not just for us. It's all kinds of land use all over the world that is basically facing the same problems. We only today pay landowners for destroying nature and not for protecting it. And this is the thing that we started tackling. So how can we start paying for something else, if there's something else to be paid for, then what is it?

And we realized that there's so much ecological value of nature that hasn't been monetized until this day. So while we talk a lot about the carbon sequestration in nature, but there's also by the biodiversity, there are so many different things that nature actually does for us, sometimes called ecosystem services.

So the services that nature provides to humans, kind of like looking at this from a very human perspective, and this has set what we started to building. So describing how nature works, because although we have thousands of satellites orbiting around the earth, nobody has actually ever built this one unique representation of what nature does, and then brought that to the digital world.

So, this is how we started building the digital twin of the world's nature to just use satellite data and big data analysis and machine learning to cover the entire globe to just mimic what nature does and do that and show that in the digital world to show how nature behaves in real-time and one of the good things that it provides us with.

So, so this is how it all started. And obviously, the next step is then how to provide access to landowners. We want this to be super easy to access for everybody and then free of charge so that everybody would have equal access to that all over the world. And based on that, we can start creating tokens. 

So we see that in real-time if a forest, for example, is still there and it's still growing and intact that we continue emitting those tokens based on the work that nature does. So the easiest example is, I mean every time the forest sequesters a hundred kilograms of CO2, we can emit one token that they can then, the landowner can then sell to the buyers and then start earning money and get like this real-time incentive to continue keeping the forest intact. 

Oksana: 

Understood. Very cool. I think what you're doing is great, but you made a few points as you were answering a question and you sort of quite highlighted in your TedTalk and this concept that currently we reward destruction, we reward financially destruction, and so we have the depleted earth as a result. And changing it around is truly a great idea. And you have chosen tokenization as a way to tackle it. So is this a very open-ended question, if you had unlimited resources and time, what other aspects of environment, society, you take your pick, you would tackle next with the same concept?

Merit: 

Actually, we already have a few things planned. So currently we're looking at carbon sequestration and biodiversity value, which are like direct values of nature. But they are also making a huge impact on the social socioeconomic space, and they have actually all these different layers connected to them.

So for example, if we are able to start paying to a community that is protecting their land, their old-growth forest, rain forest, for example, then we are actually also giving them the opportunity to finance their future, to improve their lives in a way that hasn't been possible until today. So we understand that people don't cut down for us, especially in these developing countries, because they want to cut them for us.

They do that because it's tied to their survival. They need this income to feed their families, to pay for education, to do all of these things that you can only do with money. But if we are able to start paying that to them, for other things like keeping the forest intact, we can get the best of both worlds. They can receive money and through that we can also, for example, empower women. If their financial reward is high enough, we can actually have impact on the socioeconomic perspective as well. There's more money in the family. Perhaps more girls would get education. We can empower female leadership in this respect. So there's actually a lot of different layers that we're planning to add to this.

So we started from this carbon and nature because this is sort of the starting point or the most direct impact that we're making. But that's the next layer we're going to add the different social, economic, and other impacts that our platform is supporting as well, so that we can understand whenever we protect it for us, what are the different benefits that the world actually gets from that?

And it's actually not just the environment, it's the people and everybody benefits from it. 

Oksana: 

Coming back slightly to the polluting aspect of blockchain and inevitably tokens are linked to blockchain, I understand it's slightly more complex, but do you think that first of all, how do you address it in your offering because it's a little bit counterintuitive to what you're offering.  Do you think that we are close to solving that sort of aspect of minting and everything associated with blockchain? 

Merit:

That's a great question. And we actually get that a lot, then it's actually good to see that people are very aware of this problem.

The good news is that there are actually blockchains that have very small, like of course it’s not non-existent, the footprint is always there, but there are blockchains that have a lot lower footprint than the current, for example, the Bitcoin blockchain that everybody is kind of aware of. So the difference between those blockchains is that there are proof of work blockchains that take a lot of energy to run and then there are the next generation, the so-called proof of stake blockchains that don't actually take this amount of resources to run. 

Now we are using a proof of stake blockchain specifically for this reason that we want to keep the energy consumption as low as possible. Because it otherwise goes against what we are fighting for.

So it's actually very good that we already have a technology that is way better than the first Bitcoin type of blockchain. We can actually say the problem is still there on the market, but there are also solutions to that. We have made this very clear that we are only looking at those blockchain solutions that don't have this high energy demand.

Oksana: 

Yeah, and hopefully with advances of technology can be solved and efficiencies can come out of it. 

Slightly changing the subject, you obviously have been on a recent fundraising journey and you spoke to quite a few investors as every founder does. Do you feel that investors truly get the urgency of backing sort of purpose-driven businesses and the ones that have a solution to really tackle the problem? And how many do you feel really understood your business model or if you'd give ranges, I think it would be quite interesting.

Merit: 

I think all of the VCs that we have talked to understand the business, and then there are some investors that are really extremely excited about what we do.

Like everybody loves the idea. Everybody understands that the world with a solution like this would be a better world and we want to support that, and that's great. But for example, why did we go with EQT Ventures in our seed round was specifically because they are so oriented toward financing nature and climate tackling or these problem-solving start-ups. 

They have these values that they use when they choose which type of start-ups to invest in. So I would say that they actually have a very strong internal opinion that they want to support this type of start-up. And I would say that in general, the awareness of these topics and the excitement towards these topics is growing very, very fast.

We see more and more VCs who are looking into climate tech and green tech solutions. I think it's both the fact that it's opening up a totally new space. There were so many problems that need to be solved, which means that there are so many opportunities for entrepreneurs to create something very, very useful. Then the other part is that as well, if they create something useful, it's probably also going to be a good investment opportunity.

So I would say that it is kind of this new wave of new start-ups coming out that are very, very exciting for investors. And I think like the coolest thing is that it's not just these impact investors that are looking towards making an impact through the finance, but also very generic investors as well. Everybody wants to have these angles in that portfolio. They understand the problem. I think the main issue we currently have is that there aren't enough green tech companies to invest in. And this is actually the feedback I've heard from very many investors that they would actually like to invest more in these type of companies, but they just don't have enough opportunities for that.

So I would say that for entrepreneurs, it's an exciting time for investors as well to build a totally new future. I think it's a brilliant time to be alive. Although the challenges of course are huge and the opportunities require a lot of work, but I think that rewards will also be huge. 

Oksana: 

So that's very encouraging to hear that it's not the other way around.

My next question is a little bit about your own approach to ESG within single or you are about 30 or so people, maybe a little bit more, could be slightly outdated statistics - You aim to double the team soon. How do you think about your own measuring and reporting? And do you think that it helps to kind of have statistics on regular basis around your internal behaviour?

Merit: 

Yea, that's a very important question. The thing is that actually we scaled our team like a year ago, I think there were less than 10 people in the team. Then by the end of 2021, almost 60 of us already. So today we're actually getting closer to 70 people. And what happened is that we scaled the team really fast so we didn't scale our reporting and tracking because like, as a small team, you don't really have that big of an impact, and you don't look at that, like there are 10 people working from their homes, but now that we have scaled to this bigger team, we are actually also internally reviewing what are the different aspects of contributes to our footprint.

We're a technology company so most of it actually still comes from the technology use. One of the topics, of course, being the blockchain thing that we already discussed. So currently with every decision we've made, we've taken the approach that we want to find the most sustainable solution. So this is how we have come here.

I think from the rest of the ESG perspective, then obviously we have this very diverse team starting from the executive team to actually throughout the team. We also have a lot of cultural diversity. So in our values and in everything that we do, we always have these set of principles that we want to follow.

We haven't reported in that perspective yet, but we are currently working on this and this is going to be this year as one of our goals to actually formalize the things that are contributing to our own footprint and what are the things that we can improve and so on. So currently it has been mostly value-based, but now we're trying to turn this into a more measurable and specific activities.

Oksana: 

That's good to hear and well done. I guess this is the end of our time and questions. Great to have you Merit and thank you for being with us. 

Merit:

Thank you so much for having me.

Oksana: 

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