A massive shift has been happening in the world of investment regarding CleanTech, with several investors realizing the importance and potential of such companies. This has particularly been the case with“climate tech”— a term used for companies that specialize in technologies designed to address climate change. This includes those working on renewable energy, infrastructure innovations, carbon reduction, and other climate-focused technology.
On May 28, 2020, entrepreneur and venture capitalist Andrew Chung had the opportunity to share his views on climate tech during a webcast, “This Is Climate Tech,”hosted by Greenbiz. While at investment firm Khosla Ventures, Chung launched several CleanTech companiesaimed at combating climate change and developing and implementing technologies that promote cleaner fuel, sustainable food products, and greener agriculture. He went on to found his investment firm 1955 Capital to help cultivate technologies that can be implemented in developing countries to solve their most critical challenges. The firm focuses on a diverse set of industries that include sustainable energy, emerging tech, education, health, manufacturing, and food. Itempowers innovators and entrepreneurs to gain access to markets in developing countries to accelerate technology solutions that create jobs and nurture partnerships for long-term growth and development of the region.
Chung was joined by two other experienced venture capitalists on the Greenbiz webcast, including Andrew Beebe, managing director of Obvious Ventures, and Nancy Pfund, founder of DBL Partners. The webcast was moderated by Heather Clancy, editorial director of GreenBiz Group. The panel discussed how climate tech has evolved over the years, why it is generating so much investor interest, what characteristics they seek in climate-focused entrepreneurs, and how the current economic downturn will shape the future of climate tech investing.
During the webcast, Nancy Pfund shared insights on the changes she has seen in the climate tech investing landscape. She noted that initially the investors in this space weren’t necessarily interested in being part of the initiative to combat the climate crisis. They were mostly following the money, balancing their portfolios, or dodging the dot-com bubble. Now, she noted, investors have demonstrated much more commitment to and awareness of climate techissues and a future with more green, sustainable, and climate-friendly technologies. According to Pfund, climate tech has a more “tangible quality” for investors due to more “visibility and popular movements” about the climate crisis.
Andrew Beebe shared how he started in the solar energy sector about two decades ago. Climate tech was a very niche market at the time, and not many investors were interested in it. He contrasted this with the entrepreneurs of today, who sense the urgency and want to be part of something new and innovative; they continue to be interested in profit, but are also focused on the company’s purpose.
Andrew Chung has been a part of climate tech investing for over 15 years, and he believes one thing that hasn’t changed is the massive markets in this space,with “a lot of areas in which entrepreneurs and visionaries can explore disruption.” Chung has invested in several startups in the area, including Nature’s Fynd, Lanzatech, and Quantumscape,and has seen a rise in government and institutional interest and funding in the climate tech sector.
As for the current economic downturn caused by the COVID-19 pandemic, Pfund said the crisis could be an opportunity for entrepreneurs to innovate and find solutions that will help fight the virus and better prepare the world to meet such challenges in the future. Beebe noted the COVID-19 pandemic is a “warm-up of global collaboration in terms of tackling systematic challenges together, and climate change is going to be the big show.” He pointed out that the pandemic has shown that supply chains need to evolve into more efficient models,which is going to be a large part of the investment landscape. The COVID-19 stimulus package offered in the United States has demonstrated that, even at the federal level, funding can be released with urgency when needed. Beebe asserted that such funding should also be directed towards climate tech projects.
Chung pointed out that the pandemic has revealed vulnerability in the sustainable food space,noting that “companies need to figure out more sustainable ways for food supply” and that this will be an important and high-potential market for investment. Chung also expects climate tech companies to form strategic partnerships with private corporations and government institutions. All three panelists maintained that the COVID-19 pandemic will act as a catalyst to add more urgency to the climate tech initiatives and product development that have already begun.
The panel was also asked how they evaluate the potential of a climate tech product or service that an entrepreneur pitches to them. Pfund shared that her company has developed specific metrics to evaluate the investment potential and environmental impact of a climate tech company. These metrics include the carbon footprint, diversity of teams, fossil displacements, the potential for job creation, return on investment, and more.
Beebe’s process of evaluation doesn’t include specific metrics, especially for fledgling startups, but he noted that he likes to evaluate the company’s overall impact on the climate. For him, the “value set of the founders” is extremely important because it shows how committed the company will be to the climate goal in the long run. He contended that many climate tech companies fade into more commercial ventures, and their original goal of creating a positive impact on the climate crisis becomes secondary to profit-making.
For Andrew Chung, the “technologies need to be highly differentiated” to attract investors, who get inundated with so many different products and services being pitched to them. Investors need to see something they’re not able to do themselves or that they haven’t already seen other companies do. Chung said he believes that the cost economics and the scalability of the concept are also very important to have a real impact on the climate problem.