Startup Spotlight: Metric
All Things Venture #033
Hey Everyone! Dez here from All Things Venture. It’s been a minute since we’ve been able to send out a startup spotlight, so I am super excited to share today’s article. One thing that always gets my attention when talking with founders, is when the company they are building is category defining. Category defining companies to me are like Uber with rides haring, Robinhood with no-fee trading, and Facebook with social media. They may not always be the first company in the space, but they are the company that leads, and sets the standard for their entire industry. With the effects of climate change literally at our doorstep, a heightened attention for private companies to address social issues in the wake of George Floyd’s murder, and a greater focus on doing business in a consistently ethical manner, businesses are in need of critical category defining companies that help them embed Environmental, Social, and Governance (ESG) practices into their DNA. We may be in the early days of this industry, but it’s starting to take shape as we speak. The Harvard Law School Forum on Corporate Governance published their sixth annual Institutional Investor Survey which, “canvasses the views and opinions of more than a quarter of the world’s assets under management at a globally significant point in time.” The survey found that:
Investors are giving ESG more focus when engaging and investing, and a significant majority are taking ESG into greater consideration when voting.
Key drivers for increased ESG focus are the links to financial performance, followed by legislative changes and client interest.
The top three improvements investors are seeking from climate-related disclosures are clear links to financial performance, the time horizon to impact on strategy and the disclosure of metrics, targets and achievements.
While we’re well aware of the challenges that ESG risks present, we’re not entirely sure on the best ways to address them, and I believe that a driving factor of those challenges is because there isn’t a standardized way to measure ESG performance. Many of us have heard the saying, “if you can’t measure it, you can’t manage it”. I think that maxim is 100% applicable to the industry, which is why I am so excited that I had the chance to chat with Megan Murday, the CEO and founder of Metric. Metric is a company that I believe has the potential to be category defining in all things ESG, and Megan is laser focused on moving the needle and creating a company that aligns profitability and purpose, in the best possible way. Let’s dive right in.
Also real quick before we do that. A huge shoutout goes to my wonderful girlfriend, Tess, for connecting me with Megan. You the real MVP.
Okay sweet lets dive right in.
What is Metric?
Metric provides software to help private market investors measure their portfolio ESG performance. We have built out a two-sided platform to help GPs and their portfolio companies unlock a comparable and reliable ESG dataset. For investors, we recommend ESG KPIs and provide visibility into fund and company ESG performance data, which can be used for LP reporting and portfolio management. In addition, our clients’ portfolio companies can use Metric to collect the raw data inputs for ESG measurement, see performance benchmarking, and access improvement strategies.
What is the pricing model for Metric?
We price per portfolio company in order to allow investment firms to try the platform more easily and accommodate variability in fund size. Metric tiers subscription pricing by funding stage to accommodate the more complex measurement required for later stage companies.
What led you to build Metric?
My original conception of how to affect change was to go into the public sector and use policy to drive social and environmental impact. I pretty quickly saw that the public sector does not have the speed or scale to address systemic challenges without the private sector. My first job was at Deloitte, where I did a lot of digital transformation and business automation work. Our projects would use data to create competitive advantages and to drive better business outcomes, but I saw that ESG data was an operational dataset overlooked and undervalued by managers. I decided to build Metric in order to provide the ESG data management software to unlock a new business performance dataset that can align corporate sustainability, equity, and profitability.
How does benchmarking work within Metric?
We are not in the business of ESG scoring - akin to credit ratings, we believe ESG ratings will be handled by third parties. We instead show companies how they compare to industry peers and allow managers and investors to determine what ‘good’ performance looks like. Some companies have a brand promise built on sustainability and will want to outperform, but other companies will want to be in-line with industry norms.
How do you grow your services/product suite and did you have any concerns around your TAM?
We used consulting engagements as a proxy for the TAM size, with private equity companies paying around ~$50K for comparable ESG measurement services today. Our TAM for ESG measurement and management software is ~$18B which we believe will ultimately grow as the category continues to mature.
What are some of the challenges that you face at the current stage for Metric?
The question that comes up over and over again is what do you do in a pre-disclosure regulation world, which is the one we live in now. In other words, if private market investors and companies have no requirement to disclose their ESG data, what is their incentive to do so? In the absence of government disclosure regulation, we are seeing large GPs and LPs collaborate on industry disclosure standards for ESG. Their framework is likely to become standard for private markets, in advance of any formal government mandate. Our approach to ESG measurement is in-line with leading frameworks like GRI, SASB, and TCFD, so we do not expect future disclosure expectations to meaningfully deviate from our current measurement process.
Why take up the challenge of building a startup in the climate/environmental industry?
I grew up in a post-industrial suburb outside of Chicago and saw how the private sector can create prosperity but also hardship. There are myriad environmental and social challenges in the Rust Belt, and my parents ingrained in me the mandate to serve others.
ESG transparency is the first step to systemic action on climate change, shaped by policy but driven by the private sector. As the latest IPCC report makes clear, we don’t have time to wait. Importantly, we can use our climate response to address socioeconomic challenges simultaneously - new investments in mitigation and adaptation solutions will be drivers of job creation.
What’s a use case at a startup using Metric?
Our DE&I functionality provides one use case - we have built out a DE&I survey that companies can use to collect self-identification data from employees. This enables startup leadership to keep a pulse on whether they are building a meaningfully diverse team as they scale. On the climate front, we help companies identify and mitigate resource risks. We’ve even helped companies uncover that their environmental performance is better than the industry norm - a compelling narrative that can be used for end customer marketing.
What advice do you have for any aspiring entrepreneur?
Particularly for female founders, be aware of the questions you’re asked in fundraising meetings and reframe when necessary. There are plenty of questions around risk and downside scenarios, but you want to share your long-term vision. Seeking out venture-backed female founders can also help you create a network and sounding board to help you grow as a leader and as a company.
What is your wildly ambitious vision for Metric?
At scale, Metric is a horizontal layer of technical infrastructure for ESG data management in private and public markets. Metric will be the centralized platform for corporate ESG data that can be leveraged by managers, investors, consultants, auditors, and other service providers to help drive greater environmental, social, and financial outcomes.