We believe that renewable energy will only displace fossil fuels if it’s price competitive with no subsidies. For example, both onshore wind and solar energy can compete with coal, but not offshore wind. Offshore is notably more expensive than onshore which is why it’s only a small fraction of total wind energy deployed. Orsted is the global leader in offshore wind, and it has been greatly impacted by the high-interest rate now. Cost is one of the top factors that decide if a new technology or product will survive. But in climate tech, the whole context is much more complicated than usual cost numbers. That’s why we need techno-economics analysis.
Questions to discuss in this panel:
ClimateTech Adoption must make economic sense, variables including Capex, Opex, regulation penalty, government incentives, downstream markets or off-taker agreements, even carbon credits, etc., how do investors evaluate if a ClimateTech startup has attractive economic?
How to validate the cost of a new ClimateTech such as carbon capture and hydrogen storage? (technology due diligence)
How can ClimateTech startups sell to large enterprises and shorten the sales cycle?
Case studies of techno-economics analysis with climate tech startups.
Moderator
Hani Elshahawi, Managing Director of NoviDigiTech – Hani is a thought leader in the energy industry, he has more than three decades of experience (18 years in Shell) in global operations, innovation, technology management, business consulting, and the full cycle of innovation from cradle to grave and from concept to commercialization in the energy industry with roles spanning technology, engineering, marketing, business, technology, and management. Before Shell, he had worked in another leading energy enterprise Schlumberger for 12+ years.
Speaker
Amy Henry, CEO of Eunike Ventures – Amy is the CEO/Co-Founder of Eunike Ventures and Lambda Catalzer, angel investor, TiE Houston board member, principal of TiE ATX LLC (Angels of Texas), and co-founder of Texas Innovation & Entrepreneurship Foundation. Amy was named by the Houston Chronicle in 2019, “Women Who Take the Lead in Building Houston’s Tech Ecosystem” (related to the launch of Eunike Ventures). Eunike was listed in 2022 as the ‘Top 6 Accelerators/Incubators Investing in Houston’ and the ‘Top 11 Best and Most Active Accelerators in Houston. Eunike Ventures, Inc., headquartered in Houston, Texas USA is a first-of-its-kind global energy venture builder /hybrid energy technology accelerator that works with innovative, technology companies through commercialization, across the entire Energy value chain. Eunike serves a unique gap in the global innovation system by bringing together energy companies, expert talent, and best-of-breed startups.
Sujatha Kumar, CEO of Dsider – Sujatha is an entrepreneur and senior technology executive, and is the Founder and CEO of Dsider. With a background in senior management roles at multiple technology companies in the energy sector, she notably led one of them to a successful sale to Honeywell. Sujatha and her team possess extensive experience in energy and industrial markets, focusing on mid to large enterprises.
About ClimateTech Investor Panels – This is for accredited private equity angel investors, venture capitalists, and corporate/institutional investors to share insights and investment opportunities and catalyze collaboration to help ClimateTech startups.
Hani: Although cost parity is crucial for the adoption of new climate tech, the reality is much more complex. Enterprise adopters are managing a systemic change, and new tech providers need to integrate their solutions into whole systems. Techno-economic analysis needs to build assumptions, sensitivity analysis, a process model, and history matching to validate simulations with real data. Enterprises look at the lifetime value of a new investment. When I evaluate climate tech startups for investments, I need to see they have already integrated themselves into their ecosystem and clients’ systems, not just presenting a single-point solution. And if their cost structure is higher than alternatives, even mature companies might struggle when some challenges emerge (for example, high interest rate), the recent Orsted cost crisis is an example.
Sujatha: Both large enterprises and startups need to build value stream mapping, system modeling, scenario analysis, risk analysis, and transition planning for a holistic analysis and simulation before new climate tech adoptions. There is so much data involved – operational, financial, and carbon abatement data and metrics need to be integrated, also domain knowledge is needed to assist with decision-making. We help both sides to make economic sense for net zero decisions and have supported the most disruptive climate tech startups.
Amy: How startups can best engage large corporations and shorten the time to commercialization and cash generation? Many climate tech startups offer innovations in materials or chemical reactions out of labs, and there is a big gap between a proof-of-concept or prototype and a pilot. They need to be able to design a pilot to convince large enterprises and investors. To prove the business use case is economically sustainable, data and simulation are important. They will need industry veterans with experience in integrating products and services as well as with the relationships with adopters to help facilitate technology trials with process safety in mind and minimal disruption to ongoing operations. The capabilities of handling large capital projects and integration planning are required. So for investors evaluating climate tech startups, looking for qualified and experienced talents in the team or partnerships, and for due diligence, you need industry experts to get involved.
Jessie’s note:
ClimateTech might be hyped now, but the reality is complicated. This session only gives a peek into what is needed in building and evaluating climate tech ventures. On top of innovation funnels, there are too many startups that have some new breakthroughs in the labs, they need lots more resources, talents, partnerships, and ecosystem adoption readiness, besides funding, to succeed.
To get to deployment, a technology must be completely de-risked, and ecosystem economics established so that every player in the value chain has a viable economic model. This means that managing a technology portfolio solely through the well-understood and widely used Technology Readiness Levels (TRL) stage gates is not enough.
Often, commercialization fails not because of the technology’s fundamentals, but because ecosystem economics have not been addressed or critical ecosystem players have not come on board. The economic and business model requirements for deployment, as well as a technology’s societal license-to-operate, can and should shape the technical problem definition and development of solutions at all stages of the RDD&D (research, development, demonstration, and deployment) continuum.
To describe adoption risks, the Office of Technology Transitions (OTT) has developed the Adoption Readiness Level (ARL) framework to complement TRL, and provided an assessment tool on the U.S. Department of Energy’s (DOE) website. It’s a very thorough picture of new technology adoption.
Also, another great resource from DOE is the Liftoff Reports. DOE’s Pathways to Commercial Liftoff reports provide public and private sector capital allocators with a perspective as to how and when various technologies could reach full-scale commercial adoption– including a common analytical fact base and critical signposts for investment decisions. The first Liftoff Reports are focused on advanced nuclear, carbon management, clean hydrogen, and long duration energy storage, Virtual Power Plant, Industrial Decarbonization.
Recommended resources:
Activate: Techonomics: Establishing best practices in early-stage technology modeling
Department of Energy: Techno-economic, Energy & Carbon Heuristic Tool for Early-Stage Technologies
Climate tech companies just had their best quarter for fundraising in almost two years, drawing $16.6 billion. Venture capital investment into climate tech is doubling YoY, but the funding gap is not closing fast enough.The first question about investing in climate tech comes into mind – Is this category a capital-intensive play? So, many investors choose only climate software. Actually, there are many variables in answering that question.
One of questions we’ll ask startups is – what’s your capitalization plan? It will impact life or death, speed of growth, capital efficiency for startups, and returns for investors. There are strategies for partnerships and business models to consider for a less capital-intensive growth path. And, when to exit and how? In this panel, we like to cover capitalization and financing strategies in different stages for climate tech startups.
About ClimateTech Investor Panels – This is for accredited private equity angel investors, venture capitalists, and corporate/institutional investors to share insights and investment opportunities and catalyze collaboration to help ClimateTech startups.
Speakers
Paul Burgon, Co-chair of Keiretsu Forum CleanTech Committee, GP of Exit Ventures – Paul is a dynamic operations and investment executive who has invested over $3 billion in almost 100 different companies at high rates of return. Paul balances 1) strategic analysis and strategy development, 2) creating and implementing processes that map to company strategy and 3) team leadership, consistent execution and continuous improvement to create outstanding results.
Karen Sheffield, Finance Director at Visa, Founder & Managing Partner of Pachamama Ventures – Karen is a managing partner of a venture capital firm investing in US early-stage climate tech companies. She is also a Finance Director at Visa and has previously worked for PepsiCo and American Airlines. A self-described operator turned investor, Karen began angel investing 3 years ago and, ever since then, has dedicated much of her time to uncovering opportunities in unlikely places. Karen holds a double degree in Finance and Economics from Texas Christian University (TCU) and an MBA from The University of Texas at Austin.
Interviewed by Jessie Chuang, the topics cover 3 major parts:
Funding gaps and sources for ClimateTech startups and projects
Business and partnership models deciding capital intensity & plan
When to exit and how
Takeaways:
Karen:
I grew up in Peru, and in the country, climate impacts a lot of everyday decisions we make, that’s why I am so passionate about climate investments.
Early-stage startups going to build a proof of concept (POC) need to get initial funding from friends and families, angels (several angel groups focusing on climate tech or impact investing), and government grants – there are so many now for climate tech companies, including IRA and more. Talk to grant writers to help you. Getting grants is hard, but getting funding from VCs before POC is even harder. Non-dilutive funding sources such as grants from governments are crucial for early-stage companies. and now more foundations and family offices want to invest in climate startups. Catalytic capital funds emphasize more on impact instead of maximizing financial returns solely. After you have revenue, there are revenue-based financing mechanisms that can help.
I have 15 years of experience working in Fortune 500 companies, I’ve witnessed the interest in building corporate VCs (CVC) growing significantly. Visa and Pepsi all have CVCs. Most CVCs might take a board seat if they invest to guide the startups, they have very broad interests, not limited to their current business lines, and have lots of funding to experiment. The chief sustainability offices (CSO) in large companies want to partner with climate tech innovators and achieve more than ESG compliance. Of course, there are pros and cons to consider when working with CVCs or corporate partners.
Paul:
The best outcomes in climate tech happen when companies can align their development milestones with their capital strategy.
A big difference between the cleantech 1.0 era and now is that the capital stack for climate tech has been developed rapidly and much more mature in the past 5-7 years. There are billions of hardware or cleantech funds, we see CVCs exploding, we see customer-financing models (customers as investors to build win-win outcomes, be creative, and build partnerships with customers), DOE’s loan office can support commercialization stage projects, and there are growth funds and infrastructure funds looking to back hard tech, etc. These didn’t exist 5-7 years ago, all are narrowing funding gaps substantially for first commercial operations. Especially CVCs can become your potential acquirers, so, look at companies in the ecosystem, and build partnerships.
Funding first commercial productions is still the largest funding gap risk. Although not as fast as we like, we do see that large infrastructure funds are coming down and VCs are going up to narrow the gap and reduce the capital intensity of climate tech startups. Also, a lot of innovations aren’t really as capital-heavy as most people imagine.
Paul wrote the following supplementary notes for reference.
Quote from a large climate tech grant writer: Grants are the quintessential way of filling these valleys of death with patient, risk-tolerant, non-dilutive capital. Government grants have historically done a fairly good job in earlier stages with technology risk by supporting R&D. More recently, with the massive flood of public funding into the climate space, there is sufficient funding for the government to put tens and even hundreds of millions of dollars behind a single project, enabling climate tech companies with high CapEx to undertake the large-scale demonstrations or first-of-a-kind deployments that bridge the commercialization valley of death.
Examples of investors with deep pockets for growth and physical assets are starting to raise and deploy investment vehicles earmarked for climate:
Mega-firms: Mega-shops like Brookfield, TPG, Apollo, KKR, Carlyle, Stonepeak, and Blackstone are also flocking to climate raising tens of billions to finance the net-zero transition.
DOE Title 17 Clean Tech Loan Program:
The Title 17 program can support technologies at each deployment milestone—first-of-a-kind deployments that solve applied engineering challenges; follow-on deployments that establish engineering, procurement, and construction excellence and lower total project costs; substantial scaling of deployment and manufacturing capacity to drive advancement along the learning curve; and education of commercial debt markets to enable broadly available debt financing.
Commercially ready technology has been demonstrated at near commercial-scale under expected process conditions with results supporting the expected performance of the proposed deployment. Performance data from testing at pilot and demonstration scales (confirming at least a Technical Readiness Level 6) must have been performed and be available for review in order to confirm commercial readiness. Applications will be denied if the proposed project is for research, development, or demonstration.
No minimum loan amount. It can usually cover 50-70% of eligible project costs, and loans for up to 30 years. Low interest rates. Check out the criteria here.
Thoughts on how and when to exit:
There’s no perfect answer for when to exit. Some people sell too early and leave a lot of money on the table. There are also many, many stories of startups and boards wanting to hold on and try to go public or sell for a billion dollars, and they end up losing a lot of money or almost everything a few years later due to new competitive technology, the team falling apart, or whatever.
In my opinion, you should consider a few basic things in deciding the right time to sell:
The required return of the founders and the key investors/board. Have they made enough money to justify the time and investment?
What are the technology, market and other risks that could derail the future success of the startup and create a loss scenario? You need to be very honest with yourself on this point, most startup teams are way too optimistic about their near-total invincibility in the next several years. There are always big things that can go wrong, even the unknown factors that aren’t visible today.
Do you have a realistic exit opportunity to pursue in the near to medium term? Is an exit a viable option?
Is the team ready for an exit? Sometimes people factors can preclude a successful exit. The team has to be ready, presentable, and complete.
Is the business ready? Are major customers happy, is the business litigation-free, large problem-free? Are major contracts all renewed, not about to expire? Get due diligence issues cleared up before starting the exit process.
If all of these issues are a go, then I would probably err on the side of exiting sooner rather than waiting of a perfect scenario and perfect valuation. Don’t be greedy, take a win, and stay on with the new owner for a while, maybe a long while, or go to your next big thing in my opinion.
How to exit
How to exit is a completely different podcast. I have an hour podcast on just how to exit. If you are ready to exit, you need great advisors and a board that is very experienced in the tactical best practices of exits.
About Global League
Global League is a vetted network of accredited and professional investors collaborating on We select startups from top seed investors(VCs/angel groups) and build a disciplined process to get collective intelligence for investments and venture building. Collaboration and co-investing are our core strategies to connect silos and help the most impactful ventures.
China leads the world in energy transition investments (led by the state government and corporations). In 2022, China splurged more than 500 billion U.S. dollars into technologies like solar and wind energy, batteries, and electric vehicles. This was roughly four times more than U.S. investments. In 2021, European countries invested $219B in energy transition, about double the amount of what the US invested ($114B), according to the World Economic Forum. Of course, the Whitehouse has established the Inflation Reduction Act (IRA) in 2022 as a game changer. Furthermore, US startups received VC funding in ClimateTech more than in other regions – the U.S. received the largest share of global climate tech VC funding in 2022, at 41 percent. (according to Statista)
Interviewed by Jessie Chuang, the interview questions include:
Please introduce SWAN Impact Network (the most active impact investing angel group in the US).
Which nascent sub-sectors of climate tech have the most promising potential? (what sub-sectors are too crowded?)
How do you identify and evaluate them, and how do you do due diligence?
What are the risk factors for today’s climate tech startups? How do you de-risk them? The strengths of the US market?
What is your portfolio-building strategy in climate tech investing?
Takeaways:
SWAN was started in 2016 to invest in for-profit impact startups. The strength of the network is the deep experience of the angels in the network and their passion for helping our portfolio companies succeed. We work on a quarterly basis and we receive between 50-140 applicants per quarter from all over the US. We usually end up investing in 1-2 companies per quarter.
In a recent Climate Summit hosted in Houston, the good news is the IRA will pour around $1.2T into this space in 10 years, it’s not a cap, it’s a projection!
There are a number of different sub-sectors in climate tech that we believe are very promising. The first is improved efficiency, this will most likely be in electrical applications, but could also include things like ICE engines, industrial processes, water, construction, and building maintenance. Sometimes these interim solutions that will get us to an electrified future are overlooked. We also like solutions that combine innovations in hardware and software, giving us two potential technology moats. For example, solar or wind energies combined with AI/ML or algorithms could be promising. Lastly, we are excited by startups innovating inchemistry and material science that help remove carbon and/or produce more sustainable products. There are some areas we think are too crowded, including battery chemistry and carbon tracking software.
We have a relatively standard process that we use. We see a lot of startups that we meet at events or accelerators, are already engaged with one of our many partners, or apply to us directly. First, we make sure they fit our thesis and are in a stage that makes sense for us, and are raising an amount we think makes sense. We then add them to our process which starts with an introduction with one of us on the team and a review of their documents. We evaluate their impacts, financial return potential, deal terms, product-market fit, and most importantly the team.
How do we de-risk? The first is validation by customers, for example, they have paying customers, strategic partnerships, or at least a letter of intent (LOI). And if they have obtained government grants, that’s a very positive signal, since it’s non-dilutive funding with resources and expertise. Also, we can analyze investors – what other investors have invested, especially from potential future acquirers, even only a small amount. There are macro or market risks not controllable by startups, so the team is the most crucial factor, they must be competent to handle new challenges. Furthermore, we want to see the offering is so compelling, that it’s a must-have, not nice-to-have.
We mainly invest in US startups, because the US has a global influence, and governmental risk, market risk, and supply chain risk are minimized as much as possible in the US. But we’re living in a very global world, so we ask – how global is your supply chain? Do you have backups for your critical parts? Even if it’s not realistic for early-stage startups, it’s something you should consider when making investments.
Early-stage investors, either venture capitalists or angel investors, a portfolio-building strategy is needed – consider investing in 10-20 companies in 3-4 years because a lot of risks are unknown. It’s suggested to diversify across different sectors, geographies, genders, and backgrounds of founders, and add some companies without technology risks – the technology isn’t new, but the application or go-to-market strategy is novel.
About ClimateTech Investor Panels – ClimateTech is hard for investors not only because it’s mostly deep tech, but also because the variables for unit economics and adoption readiness are evolving. We interview one ClimateTech investor every Friday, a 30-minute Zoom meeting without live-streaming, we’ll do a briefing after every interview to be shared with broader networks. Join Zoom meetings to talk to speakers, or invite others to join the conversation/follow insights (Sign up).
Half of the largest European venture capital deals in Q3 involved climate tech startups as the sector has seen less severe declines than others in VC dealmaking. A total of €9.1 billion (around $9.6 billion) was invested across 748 deals in the first 9 months of this year, according to PitchBook‘s Q3 2023 European Venture Report. This represents a fall of 42.8% for deal value and 38% for count compared to 2022. (FinTech and Software saw >70% declines)
Jørn Haanæs, Investment Director and Partner at Katapult VC (HQ in Norway) shared his view on climate tech with us on ClimateTech Investor Panels.
Katapult VC is a global investment company focusing on early-stage impact-driven technology startups. Over the last 5 years, Katapult has made 169 investments in impact tech startups from 47 different countries. Katapult invests within three investment verticals: Ocean-, Climate- and Food-tech. Katapult has run nine flagship accelerator programs and three corporate accelerator programs. Jorn has been with Katapult for about 3 years managing the climate fund, has reviewed 1000+ and interviewed hundreds of startups every year; before this, he was a successful entrepreneur who exited from his B2B software startup. He believes the climate challenge is the most pressing challenge for humans, and also will be the most profitable opportunity.
Interviewed by Jessie Chuang, the interview questions include:
Major public investments (procurement) and policies driving ClimateTech private investment momentum in Europe, and the timeline of impact.
Which nascent sub-sectors of climate tech have the most promising potential? (What sub-sectors are too crowded?)
How do you identify and evaluate them during diligence? (Invest after PMF, revenue?)
Please introduce Katapult and talk about your previous and recent investments and portfolio-building strategy.
What companies in your portfolio are growing faster than others? Lessons learned? Does impact investing sacrifice return for impact?
Takeaways:
In the climate tech space, we usually look at energy, mobility, cities, and enabling technologies. Cities and urbanization (urban tech stack) are the driving forces for reducing CO2 footprints. It relies on companies and consumers to adopt new innovations better than the previous ones, so you must make better or cheaper products. Climate tech needs to make its unit economics work.
Now the regulatory framework driving this is strong, but we mostly invest in B2B, less in B2G. CO2/externality taxing has started to influence the market to recognize climate tech startups, and we need to respond.
For seed-stage investors, we need to look at a very large number of startups and invest in a portfolio of enough deals in different opportunities. The power law is true in the early and later stages. Finding winners is much more important than negotiating the price. Identify winners and invest early, make them ready for series A investors, and we’ll generate returns.
The acceleration model after investing has been proven to be very effective and valuable, startups can fix their most important problems during the program (note: it can be remote). Katapult’s portfolio companies have a very high survival rate of startups – only 23/169 failed.
Overall Katapult has an average net IRR across funds of around 41%, which proves that the financial return of impact investing doesn’t need to be compromised. Actually, returns come from impact! Impact investors are different from philanthropy investors, and should not sacrifice returns for impact.
Katapult started as an impact investor in 2017 backing startups working on both social and climate issues, no one was doing that back then. These companies need much more than capital, and Katapult’s main value is connecting them with knowledge, networks, and opportunities, also helping them understand, classify, and communicate their impacts to drive value creation. Both Africa, Ocean, and climate funds are built from insights identifying under-invested areas, and applying the same method to invest and grow.
We invest in mostly revenue-generating companies, revenue-generating isn’t product-market-fit (PMF), and most seed companies don’t have PMF. We try to help startups understand how to run structured experiments to get to PMF. There are two very important distinguishing factors that de-risk startups: the first is closing the first customer to have revenue, and the 2nd is making sure you have quality revenue, don’t scale too fast, and continue to do experiments.
The boom and bust in previous clean tech cycles are faults of our financial system. We are going to decarbonize the entire economy, the opportunity is huge! The first order is energy since it goes into everything else.
About ClimateTech Investor Panels – ClimateTech is hard for investors not only because it’s mostly deep tech, but also because the variables for unit economics and adoption readiness are evolving. We interview one ClimateTech investor every Friday, a 30-minute Zoom meeting without live-streaming, we’ll do a briefing after every interview to be shared with broader networks. Join Zoom meetings to talk to speakers, or invite others to join the conversation/follow insights (Sign up).
The London School of Economics reports more than 5,000 national climate laws have been passed worldwide over the past dozen years. Leading the way: The U.S. Inflation Reduction Act (IRA), which directs nearly $400 billion to energy innovation. Carrots, sticks, and corporate voluntary actions to reduce their emissions, this ClimateTech wave is global and unprecedented, different from the previous “CleanTech 1.0” more than a decade ago. US people often think Europe is more advanced in climate actions and investments, but the U.S. IRA has claimed a leading position as a change maker now. Has it? Let’s take a deeper dive into the climate of ClimateTech’s public and private investments in both.
Speakers
Oct., 27th
Jørn Haanæs, Investment Director and Partner at Katapult – He is passionate about tech and culture, and how it affects everything around us. His background is in the tech and entertainment industries, in building entrepreneurial ecosystems (Startup Director of Oslo Business Region) and serving as a CEO for a VC-backed startup with exit (Soundrop). Katapult invests in global seed-stage climate tech. His mission is to facilitate entrepreneurs and help startups grow through impact investing.
Nov., 3rd
Juan Thurman, Director of SWAN Impact Network – Juan is an early-stage investor, board member of numerous startups, and the director of SWAN Impact Network, he is dedicated to helping early-stage clean tech and climate companies get to the next level. He’s a GP for a new ClimateTech fund.
Host: Jessie Chuang – Jessie is a startup advisor with US and international teams, an angel investor, and the managing partner leading Global League. Her previous experience includes 10+ years in semiconductor R&D and team management, and another 10+ years in corporate consulting on digital transformation and talent development technologies.
About Katapult VC
Katapult VC is a global investment company focusing on early-stage impact-driven technology startups. Over the last 5 years, Katapult has made 178 investments in impact tech startups from 47 different countries. Katapult invests within three investment verticals: Ocean-, Climate- and Food-tech. Katapult has run nine flagship accelerator programs and three corporate accelerator programs. In 2021, Katapult launched the Katapult Foundation with the aim of building a larger network around impact investing. Katapult also hosts the annual Katapult Future Fest in Oslo, bringing together founders, investors, and some of the most prominent figures within impact investment
About SWAN Impact Network
SWAN is a is a 501(c)(3) non-profit. The angels at the SWAN Impact Network are bound together by a passion for making the world a better place by supporting dynamic startups that are striving to address serious challenges that our society faces. SWAN focuses on companies who expect to deliver measurable social or environmental impact, and who also have solid plans for financial success. The SWAN Impact Philanthropic Fund allows both accredited and non-accredited investors to make charitable donations which are then used to invest in impact startup companies.
About Global League
Global League is a global investor fellowship to build a network of intelligence plus a decision-making process proven by top investor networks or VCs with an average IRR > 25%. We select startups from top seed investors(VCs/angel groups) and build a disciplined process to get collective intelligence for investments and venture building. Collaboration and co-investing are our core strategies to connect silos and amplify global impact on the health of humans and our planet.
About Wise Ocean
Wise Ocean builds up a global network to connect proven startups or scaleups, industry leaders, corporate innovators, ecosystem partners, and investors for impact and profit-making. For international startups entering the US market, we will help navigate US resources (partners or accelerators) matched to your needs, for US companies looking for Asia manufacturing or market partners, we connect with Taiwan partners.
About Enventure
Enventure is a holding company with subsidiaries of PE, VC, consulting, and non-profit entities that serve different investment methods, sectors, and audiences to empower businesses with capital, unparalleled strategic insights, and a specialized network. Our approach is uniquely hands-on, providing end-to-end investment & consulting services.
Note: Interview questions will be collected and shared with speakers before panels, briefings and recordings of panels will be shared with broader networks afterward. Sign up to get meeting invites or briefings/recordings.
Achieving deep emissions reductions in heavy industry (cement, steel, and chemicals production) can be challenging for several reasons. Carbon capture, utilization, and storage (CCUS) technologies might be among the cheapest abatement options – or the only option. For example, in the case of cement production, where two-thirds of emissions are from chemical reactions related to heating limestone, CCUS is currently the only scalable solution for reducing emissions. And in the iron and steel sector, production routes based on CCUS are currently the most advanced and least-cost low-carbon options, the same in the production of some important chemicals such as ammonia, which is widely used in fertilizers. More policies are supporting the carbon capture adoption now. (read more in IEA writing)
The cost of CCUS might be reduced as the maturity and infrastructures are improved, but that needs heavier investments and longer time horizons, and maybe not be suitable for most VCs or angel investors. Capturing CO2 is cheaper if compared with converting it from its capture solvent into a purified tank which could be up to 10x more energetically and financially costly. CO2 storage or transportation will increase operating costs or logistics burdens, the cost varies widely (data reference here). It’s better if we can utilize the CO2 immediately to create some valuable products which can be sold to create income to offset the cost or even make profits. It’s part of the so-called Carbon-to-Value (C2V) – a fast-emerging and evolving category. It could be the most VC-backable sector within the broader circular carbon economy.
A significant amount of startups focus on carbon utilization applications, representing a very broad range of possible end products, from foods, and specialty chemicals to fuels and building materials, pictured below. There are 274 companies working on carbon conversion with some combined with other carbon solutions (removal, capture, etc) collected in Circular Carbon Network (an XPRIZE initiative) Circular Carbon Market Report of 2022.
Circular Carbon Network has been tracking new companies in the carbon space, over half of all carbon tech companies (52%) within their carbon economy index report make a physical product, either in combination with offset sales and tax incentives or as the single revenue driver. Hard-to-decarbonize sectors such as building materials, industrial chemicals, and liquid fuels will likely have the largest addressable markets (estimated at $5.6 trillion collectively). Ideal C2V solutions can plug into those industries currently lacking a pathway to decarbonization to turn carbon and other by-products into useful and valuable products. Besides, the industrial gasses, consumer goods, and biochar categories also have more than doubled in size since 2021, suggesting larger investments or demand growth for these categories.
Credit: Circular Carbon Network
Major challenges are unit economics and “cross-the-chasm” adoption. Despite a few initial adopters, corporates will be reluctant to purchase carbon-negative products purely for climate reasons. C2V products still need to be comparable or cheaper than existing materials and even then, many legacy industrial, building, or transportation companies are extremely conservative and unwilling to adopt new technologies given the scale and risk of their businesses, and some industries are regulated. Digging into different contexts including driving policies in different industries and getting opinions from industry advisors are needed in making investment decisions.
For example, the EU has passed a regulation to recognize e-fuel made from captured carbon and green hydrogen from renewable energy as carbon neutral. Without a doubt, e-fuel has a significant opportunity in the aviation industry for Sustainable Aviation Fuel (SAF) since there is not much choice. And, the Inflation Reduction Act (IRA) has transformed the SAF landscape, with the inclusion or expansion of at least three significant tax credits. As a result, many “low carbon intensity” manufacturing pathways can become cost-competitive with conventional jet fuel. Subsidies and tax credits are important, IRA tax credits are transferrable and stackable, which creates significant funding for clean energy producers. (dig deeper here)
Figuring out the financing path early is essential. Among several types of funding sources supporting these carbon tech innovations — government and philanthropic grants, project equities and debts, and private investors, funding for equities raised from private investors (PE/VC) and angel investors is the largest category. Many climate tech investors have been getting more active this year even in the overall market downturn. But there’s a huge gap between early-stage venture capital checks and the $200m+ DOE loan program scale checks, CTVC’s post on the bridge to bankability addressed potential options.
Strategic business models are very important in terms of capital efficiency. It will be very hard for startups to sell equipment or services to a slow-moving, thin-margin incumbent, especially if they need to pay upfront dollars. Building a new full-stack company doesn’t always make sense, particularly when the cost of capital is high. In the so-called clean tech 1.0 era (2006 ~ 2011), some 90% of series A investments failed to return that initial investment, per a 2016 MIT study. Of those that did succeed, market returns were found to be lower than comparable investments in healthcare or software. We as investors can learn lessons from clean tech 1.0.
Corporates need climate tech to meet their climate commitments. To accelerate decarbonization in hard-to-abate sectors, the World Economic Forum, the Office of the US Special Presidential Envoy for Climate, and Boston Consulting Group created the First Movers Coalition with 83 blue chip members that have committed to buy more than $12 billion worth of net-zero products. On the other hand, large tech companies such as Microsoft, Shopify, Stripe, and Amazon have all made decarbonization investments – either through a dedicated climate fund and/or incorporating carbon removal options to customers. Climate Action 100+, the largest investor initiative on climate change, has signed 700 institutional investors managing a combined $68 trillion in assets to commit to leveraging their power and influence to ensure the world’s largest emitters take necessary action on climate change. United Airlines even formed an investor alliance and Sustainable Flight Fund to support startups developing SAF. More than 4,000 businesses around the world are already working with the Science Based Targets initiative (SBTi) for goal setting of climate commitments. Of course, global governments set up regulations are the sticks – corporations are under pressure.
Carbon markets can help with carbon monetization to motivate the adoption. Circular Carbon Network surveyed companies about their target customer industry to further understand the potential customer bases of solution providers. In 2022 companies targeting Carbon Markets as a revenue stream made a huge jump to the top of the list as target customers for Circular Carbon startups, increasing 160% in responses. We’ll talk about the carbon market and software in the next post.
Credit: Circular Carbon Network
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