general manager of clean energy companies, a VC firm that invests in companies that commercialize disruptive clean energy technologies.
With a total annual investment in climate technology expected to reach $6.4 trillion by 2023, it’s easy to forget that the industry has endured stealthy dips and spikes since the early 2000s became a separate investment class. With the market today experiencing volatility across all sectors, especially technology, this raises questions about avoiding the pitfalls that plagued CleanTech 1.0 when investors abandoned promising startups, leaving them languishing in the ‘valley of death’.
These five reminders will help investors navigate the likely waves of bear market territory and turn every company and product into a climate-driven solution.
1. It won’t happen overnight.
It’s easy to get carried away with the speed at which the climate technology industry is growing right now, but over the past 20 years I’ve seen how new technologies take time to commercialize.
Whether it’s software or hardware, an efficiency drive or an in-depth technology experiment that can be a catalyst to decarbonize a major industry, giving companies the time and money to ‘do it right’ is critical. More time means more chance of validation, which leads to a higher chance of success. Investors should avoid letting their excitement overshadow reality or overreact to any market change. Don’t obsess about the ticking clock and accept that time is the most valuable currency. Respect entrepreneurs by aligning reasonable deadlines to achieve milestones.
2. Match money with momentum.
Numerous new investors are calling for climate companies to be added to their portfolios, and in the process they are pushing valuations to seemingly stratospheric levels. With so much capital coming into the industry, investors must be diligent in tackling valuations for early stage companies. While some of these companies could be the next multi-billion dollar Tesla — or earn attractive returns in a corporate trade sale — statistically, 90% of them will languish, sell their intellectual property for low returns or close completely.
Honest, not low ratings also help founders. Nothing is more challenging than meeting unrealistic expectations from investors who have overvalued your company.
3. Past performance is no guarantee of future performance.
The old guard of investors that has been around since the early 2000s must put aside their preconceptions about past failures. We are in unprecedented times in more ways than one and we need a fresh approach and perspective.
Carbon accounting, an industry that disappeared from the radar in the 2000s, is today a potential multi-billion dollar market. Gone are the days when companies could simply set a carbon emissions target without accounting and verification. Today’s stakeholders – regulators, investors and even customers – demand from companies and their suppliers real-time, load-matched “additionality” emissions accounting, backed by clear long-term plans to reduce climate impact. Carbon accounting requires the development of new measurement software, carbon credit trading schemes and investment in new carbon mitigation technologies.
Expect the ecosystem to experience a ripple effect from new markets. Investors who are able to remain nimble in the midst of such fluctuations will be left standing.
4. Destigmatize capital-intensive industries.
In the first wave of climate technology, capital intensity was historically seen as a major hurdle to venture capital investment, especially in clean energy. While bias against these types of investments persists, investors should remember that the current market looks very different.
Manufacturing-related technologies — battery manufacturing, low-carbon cement and mineral recovery — can in many cases scale enough with grant and risk financing to secure customer deals to buy output from their new plants, making it easier to get financing at scale. A prime example is the massive funding for battery manufacturing by age-old automotive OEMs such as Volkswagen and Toyotavalidating battery suppliers such as LG and Samsung and even the Ministry of Energy and the European Union.
These strategic and government resources, combined with private equity and sovereign wealth funds, represent a new acceptance of risk that requires the deployment of huge amounts of capital in the billions for their business models. It’s high time for hardware and critical infrastructure to see capital-intensive implementations move the needle significantly toward decarbonization.
5. Bring all hands on deck.
earth has a 50% chance of reaching a warming threshold of 1.5 degrees Celsius in the next five years. To meet the climate goals at the pace we need, a wide range of participants from a wide range of sectors and regions must come together to close the gap to zero. From utilities, oil and gas, cement and materials, automotive, minerals and mining and retail, all sectors are welcome to join the largest open call ever that will require an estimated $150 trillion by 2050.
From this point on, investors need to realize that the climate crisis is affecting every sector; nothing is off limits. That’s why I see even the oldest sectors, including steel, chemicals and construction materials, getting a makeover with new approaches to reduce emissions. Even the building blocks of industry, cement and concrete, are experiencing a second wind as investors today begin to support carbon utilization technologies to bridge the “valley of death” and decarbonise incumbent industries.
Every company is a climate company.
It’s no secret that the adoption rate of technologies that tackle climate change is rising faster than we’ve seen in decades. Companies large and small are taking on net-zero commitments, adopting new emissions monitoring solutions and figuring out how to understand the carbon footprint of their supply chains.
The truth is that every company must become a climate company. And for that to happen, investors must support the technologies that will enable us to live more sustainably — returns that I could argue are more valuable to all of us than pure financial gain.
The information provided here is not investment or financial advice. You should consult a licensed professional for advice on your specific situation.