New funds devoted specifically to climate have launched at an astonishing rate in 2021: from blue-chip venture capital firms like Union Square Ventures, from large private equity players like TPG and General Atlantic, from a whole new breed of climate-specific VCs like Lowercarbon Capital.
Between 2006 and 2011, the field of “cleantech” underwent one of the worst boom-and-bust cycles in the history of technology investing.
In 2009, in the midst of the first cleantech boom, electricity from solar power was over four times more expensive than electricity from natural gas on a levelized basis.
In a market-based society, technologies gain widespread adoption only when it makes economic sense to use them.
A systemic transition of this magnitude will create wide-ranging market opportunities for an entire ecosystem of startups that enable, accelerate and capitalize on the emerging renewable energy economy.
From the constant wildfires in California to the historic heat wave in Europe this summer, climate change has begun to assert itself in people’s lives in unmistakable and painful ways.
Hundreds of the world’s largest companies—from Amazon to Procter & Gamble, from Visa to Ford—have publicly committed to bringing their net emissions to zero by a specified date and have begun to adapt their operations accordingly.
Governments have also begun to devote serious resources to the fight against climate change.
Meanwhile, political leaders from nearly every country in the world will gather in Glasgow this week for COP26 to hammer out strategies and commitments to slow climate change.
The venture capital model works best for startups with a particular profile: massively scalable, capital efficient, rapid iteration cycles, low marginal costs, recurring revenues.
These companies had to build factories, develop large-scale manufacturing and production strategies, engage in years of basic science development, iterate through generations of hardware prototypes—often before they even knew whether they had a commercially viable product.
After six years and massive capital expenditure, Solyndra concluded that it could not manufacture its solar modules at scale in a cost-competitive way, a situation that was further exacerbated by plummeting natural gas prices.
Carbon offsets have been an important, if controversial, part of the climate change discourse for decades.
The idea behind carbon offsets is simple: one party pays for another party, anywhere in the world, to eliminate an agreed-upon quantity of greenhouse gases from the atmosphere through emissions reduction or capture.
Verifying the legitimacy of carbon offset projects is manual, cumbersome and error-prone, with inaccurate accounting and fraud all too common.
An exciting new wave of startups is applying software and AI to tackle these challenges.
Pachama and NCX are two promising software companies building AI-powered carbon offset marketplaces, with a focus on forestation.
One area in which the two companies differ is their approach to the supply side of the marketplace.
Another software company to watch in this category is Patch, which raised a $5 million seed round from Andreessen Horowitz and a $20 million Series A round from Coatue in quick succession this year.
Today, the total number of carbon offsets purchased is small but growing quickly, from $53 million in 2018 to $95 million in 2020.
While directly reducing one’s own emissions is always the most effective form of decarbonization, these organizations will also need to rely heavily on offsets markets to minimize their carbon footprints.
For instance, millions of tons of fertilizer are wasted in farming every year due to imprecise and excessive application.
Precision agriculture is the practice of optimizing crop inputs on a targeted, localized basis, sometimes even plant by plant, such that resources are not misused or overused.
Some of these startups are taking a pure software approach.
Carbon offset markets and precision agriculture are just two examples of areas in which high-upside, venture-backable software businesses are being built to help decarbonize the planet.
This reflects the reality that nearly every major activity that humanity engages in contributes to our carbon footprint to some extent: building things, moving things, powering things, eating things, computing things.
While software and artificial intelligence can in some cases help, they cannot serve as silver bullets to produce basic advances in physics and chemistry.
From electric airplanes to genetically-engineered “super trees”, from nuclear fusion to giant turbines that suck carbon dioxide out of the air, a breathtaking variety of physical innovations are under development that could one day provide breakthroughs in the race to decarbonize our world.
But that does not mean that these technologies are attractive startup investment opportunities or that they represent good fits for the venture capital investment model.
In the early innings of nearly every generationally transformative technology category, from the Internet to crypto, bubbles form when initial promise and expectations outstrip economic realities.