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Enabling Climate Action with Brennan Spellacy of Patch


Consumers are increasingly invested in sustainability. In this episode, we were joined by Brennan Spellacy, Co-founder and CEO of Patch to examine the ways companies can utilize technology to take action against climate change.

Payments & Fintech Insights In This Episode

  • The importance of minimizing incentive misalignment by separating carbon accounting and carbon compensation.
  • The process of narrowing distribution and focusing on the customer journey as a tech start-up grows.
  • How to develop a competitive differentiator to create complex, sophisticated, and automated bio programs.
  • What you can control and how to be ready for opportunities on a founder journey.
  • And so much more!

Featured on the Show

Episode Transcript

Heather: Hey, everyone, welcome to “PayPod”. I’m your host, Heather Bodie. And today we’re gonna be talking about utilizing technology to take action against climate change. Joining me is Brennan Spellacy, CEO and co-founder of Patch, the platform that powers climate action. Brennan, welcome to the show.

Brennan: Thank you so much for having me, Heather. It’s great to be here.

Heather: You are so welcome. So, I love to start us off each episode with a chance to get to know you. What should we know about Brennan? How did you get into fintech? How did you land at this spot you’re in now?

Brennan: Absolutely. I’m from New York, originally, from the East Coast. But I’m a dual citizen, I’m Canadian and American. And so I studied chemical engineering up at McGill, which is a school in Montreal, with the intention of working in lower carbon energy systems. So, the idea of working in hydroelectric or maybe nuclear. And the reason I was doing that was to help fight the climate crisis. That’s how I thought I was gonna get my toes into putting a dent in climate change.

Didn’t work out. Coming out of school, I only got jobs in oil and gas out in Western Canada, which was the opposite of what I wanted to do. So, instead, I threw all of the chemical engineering out the window and became a programmer at Shopify right after their Series C, and then joined a small hospitality startup, which was then called Flatbook but then became known as Sonder, working in a mix of product and engineering roles. And then it wasn’t until April of 2020 that I brought things back to climate tech with Patch.

Heather: What an interesting true dichotomy to be looking to get into making an impact on climate change and then finding that the jobs that are coming your way are all in oil and gas. True irony there. Were you feeling discouraged at that time? To sort of totally switch gears like that feels…I don’t know, it feels like a big change, a big choice.

Brennan: I don’t know if I felt discouraged. I mean, it’s actually pretty intuitive. Most of the fundamental things you learn are actually, in chemical engineering, good at both fighting climate change and creating it, actually, where it’s all just mass and energy balances. So, didn’t really feel discouraged because, you know, there are only really so many things that are in your control, right? And that one wasn’t in my control.

And so you focus on something else that’s a little bit more exciting. And all of my peers at McGill were having an absolute blast working for software companies and software startups. And it seemed like they were having a lot more fun than I was evaluating my prospects at Schlumberger or something like that. No offense to anyone working at Schlumberger.

Heather: That brings us to Patch. How did it start? How does it work? What makes it so special? Give us a window into that aha moment of needing to build out this company.

Brennan: Absolutely. So, right around probably January of 2020, my co-founder and I, his name is Aaron Grunfeld, were getting the itch to leave Sonder and start something of our own. We had been there from when the company was about 10 people and helped scale it to about 1500, over 4 years, which is a really exciting journey and an incredible one to be on. And we really wanted to see if we could apply that same almost magic or chemistry we had working and building teams at Sonder to a venture of our own.

And when we were evaluating what are we gonna actually spend our time on, I was really advocating for bringing things back to climate change, was the whole reason I had gotten a formal education. And at the end of the day, if I was going to spend 60 hours, 70 hours a week on something, I wanted it to be on a mission where if it didn’t work out, because startups mostly fail, the time was still well spent. You know, the idea of us pushing a broader conversation or kind of ecosystem forward, even if it didn’t work out from a business viability perspective, for us, it was still time well spent. I could look myself in the mirror and reaffirm that.

And so it all goes to understanding how to fight climate change. And there’s two major levers you can really pull. You can pull the decarbonization lever, which is all about polluting less, right? So, it’s all around looking at retrofitting or replacing fossil fuel, burning electricity to renewable electricity, or maybe retrofitting existing vehicle fleets, or consuming less. And there’s carbon removal, which is all about undoing pollution that’s already taken place. So, that’s taking carbon out of the carbon cycle that’s actively heating the planet today, and effectively sucking it out of the air or taking it out of that cycle and storing it in some sort of inert form. And we needed to do both for context.

So, a net-zero future looks around 80% of that decarbonization solution set and 20% of that carbon removal solution set. And the idea Aaron and I had was, really, how do we build software to catalyze the growth of that carbon removal piece? And the reason we decided to focus there was, historically, investment in that carbon removal piece was dramatically underinvested in, despite there being a huge amount of intent and desire to invest in it.

And so, one of the conclusions we had come to was, it’s actually just too difficult to access what are called carbon markets, which is the idea of buying and selling the ability to sequester or remove carbon dioxide. And so Patch is software that helps businesses interact with those carbon markets. And we do that through multiple media. There’s a visual interface, kind of like a web application. But there’s also a series of APIs, which is how computers talk to each other. And that’s where the fintech use case actually comes in, where banks and crypto companies will actually use our APIs to embed some form of climate action, the ability to buy, the ability to sequester carbon dioxide, within their application, or crypto protocol, or whatever it might be.

Heather: I have to take a deep breath moving into this next question. Before we started talking, I had mentioned that I might feel foolish about some elements of this conversation, so let’s see where this takes us. All right. So, I was thinking about this in advance of our conversation, that every day, what you were talking about, that decarbonization, that sort of, like, consume less, I’m thinking as an individual consumer. So, using reusable storage containers, driving an electric car, being diligent about recycling.

I have to admit, I have never considered my role as an individual consumer of my digital footprint as having an impact on climate change. Is there, like, a way to break down in layman’s terms or a way to understand how an individual is impacting climate change through their digital footprint?

Brennan: Yeah, absolutely. So, most of the applications we’re actually interfacing with are not actually being applied to the digital footprint in that the computational load of a particular software solution, or application, or website is creating a lot of pollution. That is actually a critique of a lot of cryptocurrencies, and we can talk about that later…

Heather: Yeah, I was gonna bring up…

Brennan: … but what we’re actually referring to is the idea that these, in this case, credit cards, kind of rewards points, all these things, are actually proxies for how much you consume as an individual. So, it’s actually a really great spot to understand, it’s a really great leverage point to understand how much am I consuming, either as a business or as an individual, and how can I take action on that?

And so we have companies like Ascenda, for example, which is a rewards infrastructure provider. So, they actually give you the ability to exchange, like, Amex points for another reward point, for example. They work with Patch to actually allow you to turn those points into a form of climate action. And other folks try to do roundups. So, if you buy something that’s a buck 50, it’ll apply 50 cents to some form of climate action. So, that’s primarily the use cases that are being tapped into by these financial technology companies.

Heather: Okay, thank you. That absolutely helps clear it up because I was gonna bring up crypto just as you just did. I mean, I think that Bitcoin mining feels like at the top of what we’re hearing about most often, and that criticism of the carbon footprint of that. But what you’re talking about and what your company focuses on is enabling individuals to take various forms of climate action. It’s not just about addressing the climate impact of the individual company.

Brennan: That’s correct. And it’s really about helping those companies, though, build different products and services that either other businesses can use or other consumers can use. So, there are a lot of cases where the use case for Patch is actually B2B2B. Where if we’re selling to a spend management platform or a travel management system, the end consumer of our customer is not a consumer, it’s another business. And so, again, it really depends. We’re just providing these Lego bricks that people are able to build really whatever they want with.

Heather: Can you speak to a specific…and you don’t necessarily have to name the client unless you feel comfortable doing so, but a specific use case that gave you that first “we’re doing it” feeling? Being such a new company in any sort of tech startup, right, the wins are few and far between, the tragedies are constant, right? So, can you talk to me about one of those big wins or one of those moments where you felt like, “Yes, I’m having an impact?”

Brennan: Yeah, absolutely. I think the one that sticks out the most for us is Afterpay. So, I imagine folks listening to fintech podcasts are familiar with buy-now-pay-later companies. Afterpay is one of the big, I guess, three or four besides [inaudible 00:09:17], Klarna, and maybe there are a few others in that realm. And Afterpay, right now, it’s just in the U.S. But if you’re using Afterpay in the U.S., you actually have the ability to take climate action from the app. So, if you buy something on Afterpay, it helps you understand the carbon intensity of that purchase and then choose across, I think, seven or eight different types of climate initiatives to compensate the emissions associated with that purchase from. And that’s all powered by Patch’s APIs.

And so seeing that kind of BlogTalk Friday, Cyber Monday spike last year and watching them actually couple it with their loyalty program, they have this concept called Pulse Points within Afterpay, which is effectively like Amex points. They’re using all these different things as a way to drive loyalty within the platform, where if you’re contributing to different forms of carbon removal or climate action on Afterpay, you’re actually getting additional Pulse points. So, they’re using it as a way to get you into essentially that rewards loyalty feedback loop while at the same time rewarding good behavior.

Heather: I love it. Does Patch help with carbon accounting as well?

Brennan: Not in a direct way. What I mean by that is Patch has a series of carbon accounting APIs, just API, so not a visual interface. So, it’s actually really important as Patch, one of our largest customer segments is carbon accounting firms. So companies like Plan A, or Normative, or Persefoni, who’s quite big in the financial sector, they all have these exercises where they’re helping folks understand what their carbon footprint is, provide extra strategies, and then the compensation piece is actually powered by Patch.

The other piece is Patch has a series of carbon accounting APIs, but most of the time, we’re actually partnering with a different carbon accounting provider behind the scenes. And the reason we provide a buyer API is it simply just provides a better integration or API experience. You know, having to negotiate one contract and integrate with one set of APIs is much easier than having to integrate with five and having five different service-level agreements, things like this.

And the reason that’s so important is really this idea of separating potentially concerns or incentive structures. And what I mean by that is we spend a huge amount of time at Patch thinking about what would happen if we added one, two, three zeros to the amount of volume we added, or the amount of volume moving throughout the entire market? What types of behaviors would be incentivized? Because it’s really easy to say, you’re always gonna do the right thing when you’re small, but when you’re at scale, and there’s a huge amount of complexity, and maybe you don’t know everybody, weird things can happen, right? We’ve seen that happen certainly within fintechs.

And one of those kind of key pieces is actually making sure that the organization doing your carbon accounting is not the same organization monetizing your carbon compensation. And the reason for that is because it’s essentially the idea of a doctor getting a kickback for prescribing your medicine. You actually wanna make sure those are completely separate. And the actual person getting diagnosed, if you will, in this case, the person getting the footprint, has the autonomy to decide what they want their path of climate action to be without getting biased by the person giving them that particular carbon footprint. So, if you have a carbon accounting firm monetizing carbon compensation for your platform through their platform, that should kind of be setting alarm bells off in your head.

And so that’s really why…although from an API experience, it’s a really great experience just to have one API, but that’s why we’re always going to partner and push to always partner when we do any form of carbon accounting. I’m doing air quotes and realizing this is a voice-only podcast. And the reason for that is because it’s really critical that we’re really just acting as a gateway that passes information to whatever carbon accounting provider that is to minimize that form of incentive misalignment.

Heather: Talk to me about the customer journey. People come to you saying, “I need…” what? What specifically are you solving for them? And how does that onboarding trajectory go?

Brennan: What’s really fascinating about the space we operate in is how much stratification there is in the level of understanding and maturity of our customers. So, really concretely, private equity firm EQT, they have about $100 billion under management. They are one of the most kind of sustainable, forward private equity firms in the world. They’re headquartered in Sweden. They came to us and said explicitly, “This is our carbon footprint, it is calculated by this particular party. We need a diversified portfolio of climate action. Can you do it for us?” And we said, “Here’s the software, you build it yourself,” and they transacted. That was very, very easy. They knew exactly what they wanted, they had all the prerequisites, and they were ready to go.

Then you have folks like Afterpay, where we’ve been told, “Hey, you know, sustainability is important to our consumers, you tell us what we should do.” And then it becomes a little bit more of a collaborative relationship, where we’re trying to understand how can we embed climate action within the product or service, typically, we’re spending time with their design and product teams. Sometimes, in this case, we’re also spending time with their CMO.

And then there are other situations where an organization will come to us and say, “Hey, are you a carbon accounting firm?” And because there’s a bit of that miscommunication, we’ll say, “No, but you can work with any of these organizations that are integrated with Patch. Work with them. And then don’t worry, you’re gonna get access to Patch through them.”

And so there’s always different types of engagement models and levels of understanding. And as a result, there’s no single customer journey. You probably have three major customer journeys that vary depending on the maturity of the customer. So, maybe, like, nine unique outcomes at the highest level, most likely. If it’s, like, a total newbie, I know a little bit, I’m a pro, and then are you coming in to integrate with the API? Are you coming through a channel? Or are you coming to do a direct buy?

Heather: I feel like that must be exciting, to have that constant puzzle to solve with each individual case. That you’re having the chance to be creative and sort of play Tetris with the way that you complete what the customer is looking for. I know that I absolutely crave that in my own work. I couldn’t do the same thing for the same people every day. So, I imagine that’s…that just sounds incredibly interesting. Not only is the topic interesting, but then you get to sort of make it work case by case. It’s cool. It’s really cool.

Brennan: It totally is. I think that was really the story of 2021. Where we were getting a lot of these first use cases off the ground. And we were doing that Tetris, as you’re referring to. Now it’s at the point where, you know, expectations are higher. When you raise more venture capital, you’re expected to have a little bit more of a repeatable process. So, there’s this idea of how do you narrow the distribution, right? Like, the idea of us having nine types of customer journeys.

Before, if you had asked me six months ago, I would have said, there were, like, 27 or something. And through refinement and focusing, we’ve been able to narrow things down. Because that’s kind of a little bit of the not necessarily drawback, but that’s kinda the grass is greener…you always say the grass is greener. When your company becomes bigger, you have to have a little bit more repeatable process. It’s a little bit more standardized. And so there’s less time for puzzles and more time for, you know, how do we kind of roll these use cases off the factory floor, if you will?

Heather: Interesting. What’s the long-term…you know, when you sat down that first time, putting pen to paper or your fingers to the keyboard, and saying, “We’re gonna develop this company,” what’s that ultimate vision?

Brennan: Yeah. You know, we initially thought it was going to be… I’m not a very romantic person when it comes to, like, entrepreneurship. I actually did not have, like, this incredible epiphany one day where I said, “This is exactly what the future is gonna look like in a decade. And these are the 10 steps we have to take to get there.” Really, the way we got here was, “Hey, there are six or seven things that need to be true in order for us to hit our climate goals. Gigaton-scale carbon removal is one of those things. How do we just focus on making that happen? What’s preventing that?” And that’s what led us. Patch is part of the solution to that problem. It’s not even a solution to that entire problem, it’s just a sliver. A company like Patch needs to exist in order for that to happen, but a bunch of other things also have to be true.

Since starting that, though, as we’ve learned more and worked closely with customers, both on the buy and the sell side of Patch, we’ve actually begun to put together a little more of, like, a robust thesis around what the future actually will look like. And it really surrounds, I think, probably two elements. The first is, climate action is gonna move from this bespoke, purely a compliance-based kind of function to something that’s a little bit more scalable, embedded, and sometimes can actually be a competitive differentiator for companies.

And the second piece is as Patch, so reacting to that is, how do we actually become not just the enabler of carbon removal, but rather this enabler of how do you provide all these Lego bricks, I love the Lego brick analogy, to interact with all these different forms of environmental markets? So, carbon is not the only greenhouse gas. It’s not the only environmental market we actually aspire to work within. We’re just focusing there today. And so, the idea is how do you have all the different shape of Lego bricks, all the different color of Lego bricks to kind of build really whatever you want and actually build these really complex, and sophisticated, and, ideally, automated climate programs? We’re very far away from doing that, but we’re much closer than we were two years ago.

Heather: I really appreciate you noting at the top of that that you don’t have that sort of romantic entrepreneurial path. I mean, I talk to folks who’ve founded companies all the time. And I’m always, like, a little bit seeking that, but I think there’s so much truth to what you just spoke to and a little bit of a trope around that romanticism, because you can fly too high and get too close to the sun with that giant romance vision. And the truth to entrepreneurship is that it’s a persistent, consistent, long haul. So, I appreciate you saying that.

Brennan: Totally. And I imagine we’re probably going a little bit off script here. But with respect to the romance piece, I think whether or not people would admit it or not, most folks probably know in their heart of hearts what I’m saying is the reality for them, even for the most successful entrepreneurs.

Heather: Absolutely.

Brennan: I’ve really had, even, like, in the short kind of two and a half years we’ve been working, through some of our investors, like GoTo, I’ve had the privilege of meeting some really, really phenomenal, impressive people. Frank Slootman is a great example, the CEO of Snowflake. This guy has taken public three technology companies, all worth, like, 10 billion-plus, right, across Data Domain, ServiceNow, which is worth, like, 100-ish billion right now, and Snowflake, which has since taken a bit of a dip in recent kind of weeks, but, you know, it’s still an incredible business.

And when I’m talking to folks like him, he’s obviously, like, top percentile of anyone in technology, but his, like, strategies are focus, like, be a little bit more ambitious, and when you have your opportunities, recognize them. It’s like [inaudible 00:19:33], and it’s kind of like being prepared, and then there’s a certain amount of luck involved. And you can’t really control the luck, so what are you gonna control? It’s gonna be that first bucket of things.

And a lot of times you don’t really have to have this…the vision is actually a form of luck. Getting to have that form of epiphany or clarity and kind of being right is actually a form of luck versus the other pieces. Which is kind of like trying a little bit harder than everyone else, so not quitting, tends to actually be what results in people succeeding.

Every successful founder I’ve spoken to has had, like, five or six moments of near death. And they just decided to, like, not give up. And then there was, like, something right around the corner. And so, sometimes it can be a dangerous cycle to get caught into because cutting your losses is also important, and you don’t wanna fall into a sunk cost fallacy. But there are far fewer geniuses, I think. I certainly don’t fall in that bucket out there that most people think.

Heather: I typically close the show asking people for the best piece of business advice they’ve ever received and from whom, and I feel like you just dropped that right in our laps there.

Brennan: There you go. Yeah. Best advice is focus. You lost.

Heather: So, what’s next for Patch? Anything exciting, or anything you can let us in on before it happens, or at least tease for us a bit?

Brennan: Yeah, absolutely. So, historically, we’ve been primarily focused on what I’ve described, fin market businesses and tech-enabled businesses, so people using our APIs. In the next probably half-year, you’re gonna see from Patch two big shifts. The first is expanding really aggressively into Europe. We’ve already hired a phenomenal team out there. We’re just beginning to pick up steam. And the second is us moving upmarket.

So, understanding what are the different types of customer journeys? You know, here we go adding more customer journeys. What are the different types of journeys required for an enterprise buyer or a chief sustainability officer? How are they thinking about things like compliance and risk that maybe mid-market companies are not thinking about? So, those are kind of the big two in the macro themes behind Patch right now that you’ll see from us in the next six months.

Heather: Incredible. I’m so grateful that you took 30 minutes out of your day to shift from saving our planet to talk to us a little bit about the work that you’re doing. I really, really appreciate it. If folks wanna get in touch with you or Patch, where should they go?

Brennan: So for Patch, it’s patch.io You can request access there. And then for myself, I’m probably easiest on Twitter. So it’s BSpellacy and then underscore because I have been able to get BSpellacy without the underscore yet.

Heather: Thanks so much, Brennan, for taking the time today. We really appreciate you.

Brennan: Awesome. Thank you so much, Heather. Appreciate it.

Heather: If you enjoyed this episode and wanna hear more, head on over to soarpay.com/podcast to subscribe on your podcast-listening platform of choice. That’s soarpay.com/podcast.

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Patch

Patch is the platform that powers climate action. With an API and a marketplace that enables companies to seamlessly purchase as little as a gram to giga-tonnes of carbon removal from reputable and trusted carbon removal projects, Patch enables people and business to take action against climate change.