Investing in climate tech startups made easy: An insider’s guide
While the environmental economy looks to be booming, the process of investing in climate tech startups must be simplified if the supply is to meet demand for solutions. Marianne Lehnis, founder and CEO of The Green Techpreneur, connects financiers with new and growing companies in the business of saving the world, sketches out the current landscape and where the world needs to be given 2050 targets.
‘Innovation is the only way the world can cut net greenhouse gas emissions from roughly 51billion tonnes per year to zero by 2050,’ wrote Bill Gates. It’s not an overstatement to say that the future depends on how fast and how much is invested in climate tech innovation.
Cumulative capital for funds raised for ESG (Environmental, Social, and Governance) efforts tripled between 2019 – 2022, from $90billion to $271billion, signalling strong growing international interest in sustainable and responsible investment strategies.
The year 2022 marked a crucial milestone in the global transition to net-zero emissions: the Inflation Reduction Act (IRA) in the US put meat on the bones of Biden’s promise to transition to net-zero by 2050. A move heralded by the Rockefeller Foundation as The Biggest Thing to Happen in International Climate Diplomacy in Decades.
The IRA offers noteworthy solar manufacturing, hydrogen, EV and battery production subsidies, all of which are underlined with the protectionist policy of being solely available to American firms operating on American soil. The IRA’s protectionist policies have contributed to an intercontinental race to invest in and own the green technologies that will change the way the world operates in the coming decade. At the moment, it’s US climate tech that is hogging the venture capital (VC) funding limelight, attracting 65% of VC funds invested globally from 2020 – 2021. Europe, by comparison, received just 13% of total VC funding in 2022, according to a report by World Fund – a leading climate tech investment fund.
Meanwhile, in Europe, the energy crisis has served as a harsh reminder that soaring gas and electricity prices could have been averted, had clean energy solutions gotten the investment and subsidies they needed earlier. The EU’s European Green Deal had written into law the goal of reaching net-zero by 2050, but it was the energy crisis two years later that truly accelerated the speed at which renewables have been rolled out across Europe. Investors have flooded into the renewables space to capitalise on the strong energy prices and shifting demands, with the European Union’s dependency on energy imports now expected to decline from 55% to 20% by 2050, according to analysis by the European Commission.
But for all the momentum building by governments, scientists, activists and conscious consumers, there’s a caveat that throws into question whether or not the goal to save our planet from widespread destruction by 2050 can become a reality: money. Words and laws have to be backed up by hard cash invested into the startups and scaleups that are delivering the change the world needs. And although ESG investing has soared in recent years, it’s currently at just 16% of what it needs to be to deliver net-zero by 2050. According to a World Fund report, investment in the sector will have to increase by 590% every year until 2030 to reach $4.35 trillion to meet climate targets.
Investment needs far outpace investment volumes, and this funding gap is increasing. Climate tech startups are the modern-day heroes, delivering the innovation the world needs to transform economies across every sector to get to net-zero. But they need funding to grow, build and thrive. The World Fund reports that climate tech startups are more than twice as likely to have a hardware component compared to startups in other sectors.
But hardware innovation comes at a cost, it’s capital intensive, both at the R&D stage and in the scaleup stage. It’s VC funding that plays a game changing role in supporting the technological and commercial de-risking of climate tech innovation. The largest funding gap is seen at the commercialisation stage of ready-for-market technologies – Series B funding – according to The World Fund.
So what are the obstacles to ensuring more funds flow to the highest potential climate tech startups and scaleups?
- Limited availability of climate tech investors: The climate tech investment sector is still in its early stages, and there is a scarcity of investors specifically focused on climate technology. This limited pool of investors makes it challenging for startups to find suitable funding sources or understand who to pitch to in the first place.
- Lack of cohesion and roadmap: There is often a lack of cohesion between climate tech startups and investors. Startups struggle to create effective pitches that align with investors’ requirements and expectations. Additionally, there is a lack of a collective roadmap for startups and investors to navigate the climate tech investment process and effectively measure and report ESG metrics.
- Limited understanding of technological viability: many investors are moving into climate tech from a generalist background and lack the specialist expertise to assess the viability of innovative climate technologies. Evaluating the impact and market potential of these technologies requires a deep understanding of scientific, engineering, and technical aspects. Without such expertise, investors may hesitate to finance these ventures.
The Green Techpreneur addresses these obstacles to investment by bridging the gap between startups and investors. It’s a marketplace, networking platform, and magazine designed to help climate tech entrepreneurs and investors build, grow and thrive.
The platform breaks down silos to connect, accelerate and inspire the global climate tech ecosystem. It provides a global investor/startup marketplace that makes it easy, accessible and affordable for startups to list their pitch and gain visibility with a wide network of proven climate tech investors. Meanwhile, investors get access to a wider pool of startups looking for funds from all over the world, providing ease and saving time and money for all parties.
Only 1% of climate startups make it into an accelerator – this means there’s an enormous gap in supporting founders on their growth journeys. Startups need expert support in preparing to ensure they have the best chance of a successful fundraise, so The Green Techpreneur offers consultancy for climate tech startups on how to be investment-ready, demystifying the process of getting finance to entrepreneurs from any background and geographical location. This means brilliant ideas from around the world get the airtime needed to be fully realised.
This is all supplemented by a magazine and podcast featuring interviews with climate tech founders who reveal real behind-the-scenes stories of how they launched – providing insight and lesson-sharing for fellow entrepreneurs and investors. On the flipside, The Green Techtepreneur also shares investor insights, making it clear what venture capitalists and more are looking for in a pitch and who they want to receive pitches from, providing valuable knowledge and resources for the climate tech startup ecosystem.
Marianne Lehnis