Why I’m excited about ClimateTech moonshots as VC investments.

Last week I was on a very fun panel alongside Ari Helgason (founder of Foobar) and James Arbib (founder of RethinkX) at Founders Forum’s first edition of FF ClimateTech. The prompt was a rather controversial one: ‘We need climate Moonshots — so forget Venture Capital’ . I’d like to politely disagree.

1. Do we need moonshots tech companies to solve for climate change?

Google X’s dedicated moonshot Innovation Lab defines a moonshot technology as one that has a 10x impact on the world’s biggest problems vs one that has just an incremental 2–3x improvement.

To solve for climate, I categorically believe that we need moonshot bets. We’re doomed without them.

While there’s been a ton of investment in ClimateTech, the pace of investment is still too slow. According to a PWC report, we’d need 7x more investments to keep warming to 1.5 degrees by 2050.

Achieving net zero will require fundamental changes across the entire economy. To name a few, we will need to shift away from fossil fuels as the first mover, decarbonise our mobility systems, rethink our entire food, agriculture, and land use, as well as adapt our retail and consumption habits. Scarce of enough funding and strong government regulations that would have to drastically change the way we live, we need breakthrough technologies to save the day on time.

For instance, the most pressing issue at hand is solving the energy problem as ⅓ of greenhouse gas emissions come from generating electricity and heat energy. While renewable energy is increasingly competitive with fossil fuel, we still need to develop more tools that are more consistent and reliable, such as battery storage, which is a key component to help with the intermittency of renewables (ie. Energy Vault).

Technologies solving for battery storage are an example of moonshots that are necessary to reach net zero.

2. Do climate investments fit into the venture mould or do they require a different capital structure?

It’s not a binary answer. It depends on the type of investment.

Solutions which are capital efficient, technically feasible to scale, and have a clear value creation proposition, are adapted to the VC model.

There are numerous examples of successful VC-backed moonshots across different sectors, such as in the shared mobility space, eg. Ofo and Mobike backed by Coatue, DST Capital and Tencent, in the sustainable consumer good brands space, eg. Beyond Meat funded by Kleiner Perkins and Obvious Ventures before going public, in the precision agriculture technologies space, eg. Indigo backed by Flagship Pioneering, and in the software-based data space measuring and predicting earth data, eg. Planet Labs, which builds small satellites that provide updated information and insights for climate monitoring and crop yield prediction, funded by Founders Fund, Felicis Ventures and Threshold.

However, the ten-year fund VC model doesn’t work well for clean energy infrastructure plays that require a lot of capital and that need a long R&D phase. For these types of investments, we need more patient capital from governments, large energy companies, corporations and CVCs, as well as evergreen funds.

More recently, we’re also seeing emerge a new breed of venture funds more adapted to climate investments that are a hybrid between corporate-backed funds and philanthropic individual investments, such as Bill Gates’ $2bn Breakthrough Energy Ventures fund, which invests over twenty-year cycles.

3. How can VCs avoid another 2006–2011 bloodbath as the clean-tech boom 2.0 begins?

In the first wave of CleanTech investing 10–15 years ago, the main focus was on the decarbonisation of the energy sector (hence why it was called ‘CleanTech’ vs ‘ClimateTech’ today). At the time, investors did not have sufficient experience navigating the capital intensity and regulatory complexity of the ecosystem.

However, today the landscape has evolved and is more prone to success thanks to a few key pillars:

1. Now it’s about ‘ClimateTech’, encompassing all areas of the economy. Beyond investing in the same areas like renewable energy and batteries, today’s ClimateTech VCs are looking across the board, from agtech and food production, to eco-friendly transportation, and to software and data solutions to help decision makers make more sustainable decisions;

2. Investors are more educated;

3. Proven successes of the first wave make it more accessible for new investors and entrepreneurs to enter the race (ie. Tesla and Nest);

4. New and cheaper technologies — like AI, the cloud, blockchain, and advanced sensors — are not only enabling solutions to be optimised and scaled, but are also offering entirely new business models that are software enabled, which are easier to back vs the old CleanTech hardware / physical-world solutions that dominated the VC landscape in the first wave;

5. Enabling environment: corporate, consumer demand and regulatory environment are all coming together, reinforcing and accelerating change.

That said, I remain cautious as the market is definitely overheated as we see dozens of companies pitching the same thing, eg. carbon accounting and offsetting carbon solutions.

4. Do you see any unintended consequences of climate change solutions?

Focusing on offsetting carbon emissions may have some negative unintended consequences. For instance, we’re seeing more and more examples of corporates being accused of greenwashing, which essentially prevents them from fundamentally changing their business models.

If you look at reforestation for instance, it is not as green a solution as one would think, for two main reasons. First, trees have larger water demands than crops causing 38% reduction in water supply. And second, when the trees die, they rot and when they catch fire, they burn, releasing the carbon back into the atmosphere. By committing to planting new trees to get to net zero, corporates are actually only delaying the problem, not solving it.

Similarly, when you look at batteries powering the energy transition towards electric, the massive amount of fossil fuel energy necessary to produce them is almost equivalent to the amount of GHG emitted by fossil fuel cars. Carbon emissions from the battery supply chains are the dark secret behind electric vehicles…

5. How optimistic are you?

I’m very optimistic. I think we’ll see some pretty fundamental shifts in the next 10–20 years and we have all the right foundations to see this happen:

1. Beyond VC investing, we’re seeing a large amount of funding in assets labelled green or climate positive ($45 trillion), ie. such as portfolio decarbonisation funds and low-carbon funds;
2. Combined with the 1st wave of CleanTech unicorns (ie. Beyond Meat, Tesla, Oatly, Nest), more funds and talent are now attracted to ClimateTech;
3. With corporate and regulations adapting, as well as consumers becoming more and more environmentally conscious, a vibrant and self-reinforcing ecosystem is being created.

6. What do you see as the most needed / promising moonshot projects happening?

There are two disruptive moonshot technologies I’m particularly excited about:

1. Carbon capture and storage: whilst we’re increasingly transitioning to renewable energies, fossil fuel will remain the primary contributor to energy production in the next decade or so. As such, we need solutions to capture and store all these GHG emissions. While carbon offsetting has seen a lot of investment, there’s still very little investment in carbon capture & storage. According to the PWC report, there are only 18 startups working on this that have collectively raised a mere $400m. Examples include LanzaTech, which turns waste carbon streams into ethanol that can then be used for fuel or chemical processes (raised $280m from Khosla Ventures), and Carbon Culture, which creates large-scale CO2 removal using woody waste from agriculture and forests (raised $6.2m from True Ventures and Cherry VC).
2. Production of food out of thin air: our food system accounts for up to 30% of global emissions (including agriculture, land use and our food production). We thus need to find ways to drastically chain our food supply chain. As such, as a vegan for the past 8 years (for environmental reasons), I can’t wait to taste my first lab-grown pork dumpling produced by our portfolio company Fork & Goode as well as the first proteins produced literally out of thin air and electricity from Solar Foods.

Bottom line — If you’re building an exciting company in ClimateTech, please DM me. We can back you at firstminute capital :-)