- Tens of billions of dollars are up for grabs for startups trying to solve the climate crisis.
- A new era is underway following the passage of the Inflation Reduction Act last year.
- Regenerative agriculture, energy-analytics software, and commercial shipping are ripe for disruption.
Venture-capital and private-equity funds searching for the next big climate solution raised piles of cash last year, and now it’s time to spend it.
About $64 billion flowed into these funds in the fiscal year that ended in November, more than double the previous year’s total, an analysis by Climate Tech VC found. That means tens of billions of dollars are up for grabs for startups trying to solve the climate crisis.
Several venture capitalists told Insider that a new era is underway because of the passage last year of the Inflation Reduction Act, which includes some $370 billion in federal subsidies over a decade aimed at expanding renewable energy and boosting manufacturing in the US. Industries known to be big polluters, such as agriculture, utilities, and commercial shipping, are ripe for change, the VCs said.
“Climate is like the internet in that it’s going to disrupt every corner of the global economy,” said Andrew Beebe, the managing director of Obvious Ventures, which has more than $1 billion in assets under management. “It might be like a dirty little secret in Silicon Valley that some of the best targets for venture capital are where governments will regulate the fastest.”
Support from policymakers can help offset rising interest rates that might make investors reluctant to back big industrial projects, said Veery Maxwell, a partner at Galvanize Climate Solutions, a global investment firm focused on climate, which declined to provide its assets under management.
Maxwell added that the influx of cash was encouraging more entrepreneurs and former Big Tech employees to enter the field.
One headwind is that not enough startups are outgrowing the venture phase and entering the public markets to raise capital, Maxwell said.
“We don’t have enough of those massive success stories, from both the financial angle and impact angle,” she said. “There’s whole categories of companies that no one’s even thinking about starting yet. We need a lot more innovation, but I am heartened that the number has gone up substantially in the last three or four years.”
Here are three industries where climate VCs are placing bets in 2023.
The global food system accounts for one-third of greenhouse-gas emissions, according to UN-backed study. Maxwell said that while practices that reduce emissions on farms are well known, such as planting cover crops that help the soil store more carbon or using less fertilizer, there isn’t a market that incentivizes that behavior, though some startups are trying to change that.
Galvanize led a Series B funding round for the startup Regrow Ag, a technology platform that works with food companies and farmers to track their greenhouse-gas footprints and invest in practices to reduce them.
Beebe told Insider that he’s excited about innovations in cutting methane emissions from livestock. There are additives for the food cows eat that can reduce the amount of methane they burp by up to 90%. Methane is a far more potent greenhouse gas than carbon dioxide, so sizable reductions could be a climate win.
Energy analytics for companies and consumers
As more people buy electric cars and install solar panels, and as utilities bring more renewable energy and battery storage online, tools are needed to manage how all these elements interact with the power grid. Consumers want to know the best time to charge their car or use electricity at home to avoid high rates. Utilities need to make sure there’s enough electricity to go around, especially as seasons change and extreme weather events become more frequent.
Meanwhile, companies and cities that are electrifying their vehicle and bus fleets need tools to manage them in an energy-efficient way.
These transitions create opportunities for companies with smart analytics software, said Shawn Cherian, a partner at Energy Impact Partners, a firm with $3 billion in assets under management that raises capital from big utilities and corporations.
The firm led a Series C funding round for Grid X, a startup that helps utilities design energy rates and communicate to customers how their actions will affect their bill.
The European Union is cracking down on emissions from the diesel-powered cargo ships that enable our collective consumerism. Maritime shipping was exempted from the EU’s carbon market, the bloc’s key climate policy, but that dispensation is coming to end in 2024.
Beebe said the industry isn’t investing a lot in research and development, meaning there’s room for new entrants to help reduce the industry’s climate tab through new battery technology, lower carbon fuels, or other solutions.
There are batteries that can power commercial ships, but today such batteries take up too much space to make the economics work on a trip across the ocean, Beebe said. For now, cargo ships operating under battery power are better suited for shorter voyages such as up and down the Eastern Seaboard of the US.
Beebe said one startup working on electrifying those shorter trips is Fleetzero, which has developed batteries shaped like shipping containers to make it easy for cranes at ports to swap them out for freshly charged ones.
Obvious Ventures didn’t invest, in part because of the concern about long-haul trips, Beebe said. But Fleetzero did close a $15.5 million funding round last year.