How Big can the Perfect Storm of ClimateTech Grow?

How big is the ClimateTech market? Reviewing the literature, we come across the data that by 2023, total investment in the ClimateTech and cleantech sectors is expected to reach $6.4 trillion. Dig a little deep into this number and you find that it is taken from a 2014 study by the World Bank focusing on developing countries. It makes no distinction between cleantech and ClimateTech because the latter was too new. Bearing in mind that in 2014 the industry was still a wreck from a VC investment perspective, what is the true potential of the coming ClimateTech storm.

The Prevailing Winds in ClimateTech

PwC did an impressive production of its 2020 publication on The State of Climatech 2020, reporting growth of 3750% in the industry over the previous seven years. It provides a valuable overview of the sector and a strategic top-down analysis on what it considers the salient features of the sector and presents key findings on investments, investors, drivers and barriers. In summary, it finds the field to be the challenge of our time capable of dramatic transformation and highly attractive as an investment area.

Business Insider reported that in the first three quarters of 2021, ClimateTech startups attracted some 19 billion in Venture Capital. An impressive research effort in the space comes from Speedinvest, which does an excellent job of surveying the European Green Deal and assembling research focused on the ClimateTech space and VC activity around it, assembling a Climate List spreadsheet of 1100+ players. The report called attention to five exciting trends sparking startups, and we can build on their report add another pair of fast-growing market segments:

Emission and ESG management: Under new EU rules, Environmental, Social and Governance tracking has become a must-have for compliance, including software for measuring, monitoring and reducing harmful emissions.
Recycling and Renewables: Everything that goes around comes around. Building a clean and circular economy, recycling and renewable energy sources, is the pulsing core of ClimateTech and various new green deal initiatives.
EV Ecosystem: While total sales of vehicles decreased 15% in 2020, electric vehicle (EV) sales soared 33%, driven by consumer demand, diversifying choices, and government incentives.
Energy PropTech: Companies are using AI and machine learning to increase energy efficiency and generate financial return in real estate, commercial and residential properties inside and out.
Energy Blockchain: Building on the blockchain concept, companies are developing ingenious methods and marketplaces for measuring and securing alternative energy transfers and transactions.

Success requires scale and sustainability

A few recent success stories illustrate why investments in ClimateTech have a chance to escape the fate of cleantech failures. While no company is future proof, there are some characteristics of authentic innovators in that space which make them good bets for investments for growth at a VC scale. One example that jumps to mind are recycling companies which have no sense of scale. It may be admirable to recycle plastic bottles from the ocean and turn them into chic designer chairs. But if you’re only going to produce five hundred chairs a year, that’s not really helping the oceans or creating a viable business.

Viable business equates to mass-scale change, and we need that mass and scale now. We are running out of time. Several hundred designer chairs is great for awareness but it’s not making a dent in a gigantic problem. Sure, every bit helps, and exemplary initiatives adds up. But we simply don’t have the luxury of waiting around for massive cultural change to evolve. Far better is to attract cleantech entrepreneurs and investors driven by self-interest. The best way to do that is to show them it also makes financial sense at VC scale, not just gradual climate sense. The more money revenue a ClimateTech company generates, and quickly, the greater its environmental impact.

An example of rocket-trajectory financial scalability in Climate Tech can be found in Twelve, which recycles carbon dioxide and water into products like jet fuel. Cofounder Dr. Kendra KuhlKuhl was alarmed by global warming in her native Montana, shrinking the massive ice rivers of Glacier National Park. Together with co-founder, Dr. Etosha Cave, they dedicated their careers to developing planet-friendly technologies. Headquartered in Berkeley, Twelve raised $57 million in Series A funding this year. There’s no shortage of cheap carbon dioxide. If you can create a cost-effective process for converting CO2 to jet fuel, you don’t have a viable business. You have a rocket ship.

Or consider Astrid Atkinson, CEO & Co-Founder of Camus Energy). After a decade in engineering leadership at Google, she dreamed of zero carbon grid orchestration, transforming electricity consumers from ratepayers to community members.” Her company’s platform provides those communities with “a meaningful way to collectively participate in our nation’s clean energy transition.” The San Francisco based startup raised $17 million in Series A funding this year.

Israel-based Greeneum is an alternative energy company that is using blockchain technology and machine learning to incentivize production and investment in renewable energy technologies and projects. This is facilitating a peer-to-peer marketplaces which employ decentralized apps and blockchain-based certificates to validate energy transactions. CEO and founder Assaf Ben-Or notes that the unique mechanism encoded in the blockchain to allow peer-to-peer carbon credit interactions and the issuance of green certificates from green producers is an industry first, and his company plans to build on GREEN tokens, a form of digital currency, to facilitate exchanges of energy and emissions values among members the growing peer-to-peer marketplace.

Carbon Lighthouse is a fast-mover in the fast-scaling proptech sector of climate tech, applying Artificial Intelligence to power an all-in-one platform that quantifies and prioritizes decarbonization opportunities across real estate and property portfolios, helping property owners profit by making large buildings carbon-neutral. By running buildings through thousands of energy modeling simulations, the platform’s AI helps identify optimal strategies for increasing energy efficiency, reducing emissions, and gaining credits. Two Berkeley friends-from-kindergarten, Brenden Millstein and Raphael Rosen, pursued their passion through the physics department at Harvard and then, after grad school and several years in New York gathering finance and energy skills, came to realize that the world can’t afford to wait for a global kumbaya moment or a tech breakthrough. The answer was green, the color of money. We didn’t need to wait for great technology innovations,” said Raphael. “Nor did we need to appeal to people to do the right thing. We could just give people money to switch to clean energy.”

The company I co-founded, Svea Solar, grew in less than five years from a small Swedish installer of solar panels to Europe’s leader provider of a full suite of digital energy management solutions for sustainable living. Today it’s valued at more than $250 million. How did we do it? We recognized that growth of an alternative energy company was less a matter of civil engineering than a restructuring of consumer expectations about energy production and consumption. We changed the view of energy from something you spend on to something you can control and from which you can profit. Something that produces not just electricity but substantial passive income that can help sustain a family. And then we provided a suite of tools to measure and maximize that transformation. That not only makes happier consumers. That creates a self-sustaining community around alternative energy, making it cool and smart. Even sexy, in the sense that coolness and smartness pulls people together and creates energetic and sustainable connections.

A Perfect Storm is Forming

Today ClimateTech is already one the fastest growing areas for investment. The decarbonization of the planet will be the next major disruption of the 21st century, according to SOSV managing general partner Sean O’Sullivan and Carmichael Roberts of Breakthrough Energy Ventures. “The difficult thing here is that we have to change everything,” O’Sullivan said on the TechCrunch Disrupt 2021 virtual stage. “ClimateTech is not just one thing that needs to be changed. We have … 1,000 different areas that need to be reinvented and industries that need to be reconstructed.”

Think about that.There are about a thousand ClimateTech companies out there, but there are more than a thousand industry sectors waiting to be transformed and reinvented. That’s a recipe for rapid growth and wild rides.

When was the last time there was a sea of opportunities like that? When was there such a massive and concerted tailwind of massive international support for a cause as important as this for the planet? The simple yet clear answer to this global imperative is: Never before.

What we have in ClimateTech, still in its infancy and still in the process of formation and transformation, are the makings, for VCs, of a perfect storm, in the very best sense of this ambiguous and overused metaphor. There will be many winners, and losers too. Much remains volatile, swirling in violent uncertainty. But one thing is sure for investors: it won’t be boring.

About the Author: Nolan Gray is a Silicon Valley SaaS exec turned ClimateTech entrepreneur and investor. American-born and based in London, Gray was selected in 2020 for Forbes 30 Under 30 in Europe. He is co-founder of Svea Solar, a pan-European digital energy innovator that has eliminated millions of tons of CO2. The company has generated $130 million in revenue, while raising $31 million, with more than 500 employees. Previously, Nolan served as CMO at Jobscience, a San Francisco-based SaaS company sold to Bullhorn, owned by Vista Equity Partners, for $50 million. He has helped raise over $80 million for multiple SaaS and ClimateTech startups in the U.S. and Europe, and has made a series of impact investments.

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