How Climate Tech VCs Think About Investing in Startups
Research and analysis of some of the top climate tech VC firms to understand how they invest and who they invest in.
Climate tech is a focus that many new and existing venture capital firms have taken with the overarching goal of fighting climate change. These incredibly mission-driven VCs believe that their time is best spent finding and investing in companies that innovate to reduce carbon emissions, help the planet heal, and help us live in the changing climate.
To understand how climate tech VC firms are thinking about how they invest and who they invest in, I looked up the top climate tech investors and analyzed their theses.
What Top Climate Tech Investors Focus On
#1. Breakthrough Energy Ventures (BEV)
Startup stages: Pre-seed, Seed, Series A
Climate tech sectors BEV invests in: Advanced nuclear power, Grid-scale storage, Bioenergy, transportation, Industrial processes
Breakthrough Energy Ventures helps finance, launch, and scale companies that eliminate the emission of greenhouse gas through the global economy.
The fund was launched in 2016 by Bill Gates and a group of other high-profile investors, including Jeff Bezos, Richard Branson, and Jack Ma.
The venture has raised more than $2 billion in capital and supported over 90 companies to date. It invests in companies that can:
Create technologies with the potential to reduce greenhouse gases, at scale, by at least half a gigaton every year
Has the capability to attract other investors
Fill critical gaps in climate technology
#2. ArcTern Ventures
Startup stages: All stages of startups
Climate tech sectors Arctern Ventures invests in: Clean energy, Energy efficiency, Energy storage, Circular economy, Mobility, Food systems
ArcTern Ventures was founded in 2012 when two former startup founders came together to invest in entrepreneurs obsessed with solving humanity’s greatest challenges - climate change and sustainability.
Here are some of the things ArcTern Ventures believes in:
All forms of transportation will be autonomous and electric in the coming years
New molecules for sustainable materials will be discovered in days, not years
Most meat will be lab-grown, not raised
The venture invests in all stages of startups but only with specific climate tech applications.
#3. ENGIE New Ventures
Startup stages: Series A and B
Climate tech sectors ENGIE New Ventures invests in: Renewable energy, Network solutions, Low carbon H2, Decarbonization solutions, Thermal energy decarbonization, and Energy management solutions
ENGIE is a European venture with €200 million to invest in clean tech startups. Their mission is to invest in scalable startups that can digitize, decarbonize, and decentralize the world of energy.
It was founded in 2014, and since then ENGIE has invested in more than 35 innovative startups. The venture doesn’t entertain seed-stage startups; they invest in startups who have proven their technology or business model and are ready to scale but are still at the early stage (Series A or B rounds).
Additionally, the startups they invest in must also fit one or more ENGIE group business units.
#4. Congruent Ventures
Startup stages: Pre-seed and Seed
Congruent Ventures invests in early-stage startups that are commercializing climate solutions, generating a positive environmental impact, and producing market-rate returns.
The venture was founded in 2017 and its fund II was launched in 2021.
The four major categories of climate tech Congruent Ventures invest in are:
Mobility and Utilization
Food and Agriculture
Production and Consumption
So far, the firm has invested in 43 companies out of which 72% have had a further funding round.
Why Investors Are Focusing on Climate Tech
Almost everyone knows the severity of climate change if it’s not controlled. Companies coming up with innovative climate technology are creating the tools to fight climate change.
But to fight climate change, these companies need enormous amounts of money, and there’s only so much the government can provide through grants and incentives.
In 2022, VCs across the world invested a total of $70.1 billion, up 89% from 2021, into climate tech companies.
Lowercabon Capital - Chris Sacca is concerned about the extremely high levels of CO2 in the atmosphere
In his thesis, Chris signifies the threat for all humanity due to the rise in CO2 levels in the Earth’s atmosphere.
“Today, the levels of CO2 in the atmosphere are higher than at any point in at least 800,000 years (and arguably as far back as 23 million). Pumping all this CO2 into the sky is like locking ourselves in a car on a sunny day.”
This concern is one of the main reasons that so many VCs are willing to take bets on climate technology companies.
According to him, to bring down CO2 levels in the atmosphere, the world will have to:
Reduce the emission of CO2 and other greenhouse gases to zero
Remove approximately a trillion tons of carbon dioxide that’s already in the atmosphere
Buy humanity as much time as possible to reduce carbon emissions
For this to happen, everyone - the VCs, governments, startups, and even the average person will have to work in tandem.
Breakthrough Energy Ventures - We need to invest in climate tech so we can get to net-zero emissions by 2050
Breakthrough Energy believes that getting to zero carbon emissions is one of the most difficult challenges humanity has faced.
That’s because every piece of tech we use in our day-to-day lives emits carbon and it’s quite a challenge to replace everything with clean tech by 2050.
Bill Gates, the founder of BEV said: “Great ideas are just the beginning. We need a plan—and the willingness to do the hard work—so we can get on track over the next decade and hit our goal of net-zero emissions by 2050."
The two things that matter the most right now are the extremely innovative ideas to fight climate change and the money to make those ideas a reality.
BeyondNetZero - We can reduce carbon emissions and build a profitable business at the same time
BeyonNetZero works with entrepreneurs to grow their companies if they have proven ideas for reducing greenhouse gases.
The Chairman of BeyondNetZero, Lord Browne of Madingley said: “There are two things that the venture focuses on:
Does our investment reduce greenhouse gases?
Does it actually produce profitable results?”
The firm has a rigorous process to shortlist its investments, and they specify a deadline for each of its investments to achieve net-zero carbon emissions.
This approach ensures their investments are not just good for the environment but also help them achieve profitability and scale effectively.
Aspects Climate VCs Look For Before Investing
Energy Transition Speed - Blue Bear Capital
“Our model is contingent on acknowledging the speed with which the energy transition is occurring, and our LPs have found alignment with our approach.” - Carolin Funk, partner, Blue Bear Capital.
Blue Bear Capital invests in climate tech companies that can reverse climate change quickly. The companies they invest in must be able to scale their clean energy solutions quickly. This way, Blue Bear can focus their time and efforts on introducing their portfolio companies to customers and others who can increase the rate of adoption.
Net Impact - Closed Loop Partners
“Our investments in the circular economy align capitalism with positive social and environmental impact by reducing waste and greenhouse gas emissions via materials innovation, advanced recycling technologies, supply chain optimization, and keeping materials in play. We measure our impact according to four key pillars that underpin the acceleration toward a circular economy” - Closed Loop’s Impact.
Some VCs, like Closed Loop, prioritize investment based on the net impact a company has on the environment, and they use that to calculate the firm’s impact too.
They review an impact statement given to them by founders and run a thorough analysis from their side. This requirement is key to them sticking to their original goal of fighting climate change.
Returns & Profits - Congruent Ventures
“We’re looking at real businesses here, so we’re not going to invest in anything that doesn’t have a fairly clear business model, or at least a choice of business models and a path to exit that doesn’t require an indefinite generous government subsidy.” - Joshua Posamentier, co-founder and managing partner, Congruent Ventures.
Congruent Ventures doesn’t invest in companies that don’t have a sound business model in place or have a clear path to exit.
As a firm with LPs for whom to get a return on investment, it’s not surprising that they have these requirements for their startups before they invest. It’s essential for climate tech startups not just to have pie-in-the-sky goals but to have a reasonable plan to reach them.
Decarbonizing the World and Generating Profits Go Hand-in-Hand
If we want to achieve net-zero emissions by 2050, governments will have to find ways to reduce the costs of carbon-free equipment, VCs will have to keep investing heavily in climate technology, and people will have to consider buying products that are more expensive but sustainable in the long term.
Thanks for reading Warming Up to Climate Tech! Subscribe for free to receive new posts in your inbox on a regular basis.
If you enjoyed this article, feel free to share it and subscribe to Warming Up to Climate Tech. This publication is brought to you by Inbound Growth Co - content for climate-focused brands.