Despite the economic downturn and the perilous position many startups find themselves in, some industries are seeing continued momentum in terms of inward investment – one of which is climate technology.
In 2021 alone, about $40 billion was invested in more than 600 deals, a trend that will seemingly continue into 2022, with significant capital being poured into startups fighting the climate crisis. At the same time, we’ve seen a slew of new funds spring up committed to the cause, putting young, climate-focused companies well positioned to thrive against a backdrop of rollbacks and layoffs elsewhere in the startup world.
The last such fund to come on the scene is: Climentum Capitalwhich today announced the first close of its inaugural €150 million ($157 million) fund, which is designed to help cut carbon emissions and “accelerate Europe’s green transition,” the company said.
londonbusinessblog.com has caught up with founding partner Yoann Berno to get a sense of what Climentum is pursuing and how it differentiates itself from the incumbents in the space.
The driving force behind Climentum’s investment philosophy is Europe’s new Sustainable Finance Disclosure Regulation (SFDR), which came into effect last year. SFDR is designed to improve transparency in sustainable investing so that finance companies are more accountable for specific claims they make around their sustainability credentials – it has in part to do with preventing greenwashing. Climentum, in particular, aims to be a so-called ‘Article 9 fund’, meaning it makes sustainable investment and reducing carbon emissions a core investment objective. And in the process, it gives fund donors access to all the relevant data they need to report on their own ESG (environmental, social and governance) goals.
Climentum’s activities are spread across three core Northern European centers in Denmark (Copenhagen), Sweden (Stockholm) and Germany (Berlin), with the support of a large number of Scandinavian pension funds and European-based conglomerates. This includes the venture capital arm of chemical giant BASF, which sees Climentum as a conduit to achieve its own climate-focused goals.
“We are supported by BASF, who see us as a strategic investment to move closer to their decarbonisation goals, and a source of information to guide their business strategy over the next decade,” Berno continued.
Berno was also happy to emphasize that two of Climentum’s five founding general partners are women (one of which has yet to be formally announced), which he sees as a positive differentiator in an industry dominated by men.
“We’re 40% female, which is as good as it gets in the industry – [it’s] still not on full equality, but we will continue to push our gender equality agenda,” Berno explained.
Climentum currently has only about half of its target €150 million in its first close, but expects to close the entire fund by the end of the year. In the longer term, it aims to make around 25 investments across Europe, from the late seed phase to series A, with individual amounts ranging from around €1 million to €5 million. The six main focus categories that Climentum will focus on to reduce CO2 are next-generation renewables; food and agriculture; industry and production; buildings and architecture; transport and mobility; and waste and materials.
Climentum said it is already close to completing three investments that are currently in the due-diligence phase, targeting materials recycling, alternative protein production and insect farming.
So far, so good. But in a field teeming with climate-focused investors and a seemingly insatiable appetite for startups that promise to help restore planet Earth, Climentum is setting tough barriers to how the team benefits financially from their collective investments. Essentially, it has to overcome two strict hurdles as part of what it calls a “dual carry” investment model.
“The first hurdle is financial in nature with a competitive return target of three times over the fund’s life,” Berno said. “The second [hurdle] is a [climate] impact hurdle with an ambitious carbon reduction target, which will be measured at the portfolio level at the end of the fund.”
In other words, Climentum measures success not only by the return they get from their lenders, but also by the impact of their investments on the climate.
It’s also important not to overlook the strategic locations that Climentum has focused on. The company does not go alone where policies and attitudes towards green technologies are among the strongest anywhere in the worldbut also where there is already a significant climate-focused tech startup community.
“Sweden, Germany and Denmark are in the top five countries in the world in terms of progressive environmental regulation and public mandate to accelerate the green transition,” explains Berno. †[And] the three capitals are some of the most active startup hubs in Europe, with a disproportionate number of climate technology startups.”
A climate of change
It is also worth going to the timing of Climentum’s fund launch, which looks pretty good from myriad points of view. With increasing pressure on energy markets due to the war in Ukraine, and many countries trying to reduce their dependence on Russian gas, this bodes well for “alternative” energy sources, as well as technologies that promise to help countries reduce their energy consumption. . In addition, supply chain problems cause a lack of food such as proteinputting emerging startups that focus on insect farming, for example, in a strong position.
In addition, the a broader economic downturn also puts investors like Climentun in a good position, including the terms they may now be able to negotiate with startups.
“The current economic slowdown has halted the euphoria in the VC market and led to a significant drop in startup valuations and stakes,” Berno said. “As an investor, we are a liquidity provider for a market that desperately needs more liquidity to continue to fund rapidly evolving innovation.”
When everything is thrown into a giant melting pot, it seems clear that now is the best time for climate tech startups to thrive. There is demand from both consumers and businesses, as governments devise policies that make society-wide green philosophies much more than a “nice-to-have” — any business that wants to function in today’s world must take its climate responsibilities seriously.
“The climate technology companies that have a real solution to some of the world’s biggest problems have already held back demand from consumers, businesses and governments,” Berno said. “This phenomenon justifies some of the high valuations that will be boosted by the demand for acquisitions from companies desperately seeking their emissions targets for 2030†