Almost the same size as Florida, global warming has made Antarctica’s Thwaites Glacier increasingly unstable. This month, researchers are attempting to reach the “Doomsday Glacier” for study, but icebergs are slowing their progress.
The climate emergency is becoming more apparent, and investors are taking notice. Last year, round sizes for climate tech startups quadrupled, with more than 600 investments totaling over $40 billion.
Nearly a third of these were pre-seed and seed, with 182 deals closing just in in Q4 2021. The start of 2022 shows no signs of slowing, with more startups jumping into the fray to tackle one of humanity’s biggest challenges.
To examine the market forces and psychology driving climate tech, we surveyed an international group of investors to learn about how they evaluate new opportunities and what they’re looking for from the entrepreneurs who approach them.
We spoke with:
- Alex Bondar, partner, Acre Venture Partners
- Carolin Funk, partner, Blue Bear Capital
- Georgia Sherwin, senior director of strategic initiatives and partnerships, Closed Loop Partners
- Joshua Posamentier, co-founder and managing partner, Congruent Ventures
- Shayle Kann, partner, Energy Impact Partners
- Heidi Lindvall, general partner, Pale Blue Dot
- Robert Downey Jr., Jon Schulhof, Steve Levin, and Rachel Kropa from Footprint Coalition
- Maryanna Saenko, co-founder and partner, Future Ventures
- Valerie Shen, partner and COO, G2 Venture Partners
- Thai Nguyen, partner, MCJ Collective
- David Frykman, general partner, Norrsken VC
Alex Bondar, Acre Venture Partners
What is your climate tech investment thesis in H1 2022? How has it evolved since you started investing in this space?
We’re fundamentally very bullish on the space. I think this is something that is a present-day issue for us to solve. We’re food and agriculture investors, so we definitely have that kind of lens as we think about it. We’re constructive around things like voluntary carbon markets. We think those are standing up. You’re already seeing quite a bit of flow in there.
We have a different view wherein we see an inflection point around less of the corporate involvement and more on the consumer side. We’re investigating how the consumer engages with these markets to solve some of these issues rather than just relying on the Microsofts of the world to buy a bunch of carbon credits.
This sector is heating up quickly. How has increased competition informed your dealmaking in the last six months?
If anything, I think all it does is validate the fact that it is a large opportunity. In some ways, it’s probably the largest opportunity in VC given its existential nature. I see it as a net positive that I don’t think there’s enough capital that we could put towards this to really find the underlying true issues here.
Which technologies are you paying attention to right now? How will they play a role in addressing climate change?
Given where we have invested recently, we definitely saw health opportunities on the agtech side. One company is going after bettering soil health so that we can sequester more carbon through better ag practices. I think something similar can be done on the forestry side as well. As we think about carbon sinks, instead of going after these highly technical solutions, such as direct air capture, there are natural proven ways of doing it. So if we can accelerate that, I think that makes a lot of sense to me from a carbon removal standpoint.
Electrification is a global trend in transportation, power generation, and elsewhere. What do you think the next big trend is in this space, and why?
This is where we can integrate some of these carbon markets with the consumer. For example, what Moss is doing in terms of making these credits very easily available for just general applications, whether it’s loyalty programs or purchases that the consumers are making.
I think it makes it much more tangible in terms of engaging with some of these environmental solutions and digitizing those environmental assets. Those downstream applications are something new and there could be quite a willing audience to engage with than just simply relying on the corporate consumer.
A lot of this is bringing trust and credibility into the space. I think those tools allow for preventing things like double counting and tracking the provenance of these credits. That is where we see a lot of the benefits. It’s also a way to create a more frictionless pipeline between the projects themselves, and then some of these applications and things like instant offsets make a lot of sense, especially in some of these consumer applications.
Some solutions (e.g., electric scooters, replaceable battery technologies) generate a high volume of e-waste. How do you consider an investment’s overall environmental impact? How much do you consult with scientists or other climate experts before investing?
We definitely think through that when we do our diligence. It is an important component. You want to make sure that things you’re investing in are a net positive. There are always some indirect consequences at times, some of which you don’t realize until much later.
You have to be in business to make these investments. So there’s a component of making sure that you’re keeping your LPs happy and you’re providing the kinds of returns they’re seeking. That being said, I think a lot of this is also like a stage process. So some of the technologies that have been invested in could be foundational for other things that come in later.
Which metrics do you use to gauge the health or viability of your climate tech investments? Is there a metric that helps you be more comfortable when cutting a check?
We think we can make the types of returns that we’re seeking in venture-style investments. There have been a lot of catalysts and inflection points in the last few years, especially in fruit and ag. I’ve seen quite a bit of innovation just in the last five, six years since we started the fund. We have an impact mission, but the underlying underwriting still has to reflect the types of returns we want to see in this space.
This cannot be like a philanthropic endeavor. I think this has to be a market-based solution. Given the size of the problem, some of these opportunities, you’re going to see these types of returns, especially in food and ag in our space. I don’t know if this is true for all industries, but I think creating more sustainable solutions is something that we see consumer demand for as well. The consumers are willing to pay a premium for that and there is economic incentive to do that.
Think about plant-based alternatives to meat. People are paying a premium for those products. At the end of the day, it’s less about thinking about these like upstream solutions and more about figuring out where the consumer demand is, and then what the consumer is willing to pay for.
We’re seeing opportunities in terms of the consumer becoming more knowledgeable, more aware, and demanding better products, whether it’s for the environment or for their health. I think this is really consistent with the investments that we’ve made as well.
Do all of the entrepreneurs you’re working with have a science background, or is this a vertical where a non-technical founder can build? Have you seen that shift over the past year?
I think it varies. It depends on the type of solutions we’re looking at and where in the value chain you are. So when you’re dealing with something like a biotech-driven company, like a seed genetics company, for instance, of course, there’s a more scientific background there. But as you move downstream, a lot of those founders may not be purely scientists.
Carolin Funk, Blue Bear Capital
What is your climate tech investment thesis in H1 2022? How has it evolved since you started investing in this space?
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