Evergrow Raises $7M Seed Funding to Advance Climate Fintech

Evergrow Secures $7 Million Seed Funding to Advance Carbon Offtake

Evergrow, a climate fintech company operating in stealth mode, has successfully raised over $7 million in seed funding.

The company is pioneering a novel strategy within the climate technology sector, positioning itself as the first dedicated carbon offtake organization globally.

A Dual-Focus Strategy for Climate Project Support

Evergrow’s core mission centers around two key actions: providing swift financial support to climate developer projects and establishing enduring, long-term offtake agreements for the carbon credits generated by these initiatives.

This approach is designed to accelerate the development and scaling of vital climate solutions.

Significant Investment Round Details

The funding round, notable as one of the largest seed investments in the industry during 2021, was spearheaded by XYZ Venture Capital and Congruent Ventures.

Additional participation came from prominent investors including First Round Capital, Garuda Ventures, MCJ Collective, and Skyview Ventures, alongside a number of individual investors.

The substantial investment underscores the growing confidence in carbon offtake as a critical component of the climate finance landscape.

• Evergrow: A climate fintech startup focused on carbon offtake.
• Seed Funding: Over $7 million secured.
• Lead Investors: XYZ Venture Capital and Congruent Ventures.

Challenges in Financing Climate Projects

Launching and successfully scaling climate projects presents significant hurdles. Banks typically require a guaranteed purchase agreement for the carbon credits generated – known as an offtake contract – before providing financing. However, securing such a contract proves difficult for nascent companies.

The return on investment (ROI) expectations of venture capitalists frequently conflict with established industry benchmarks. A multitude of parties involved – including insurers, investors, offtakers, debt providers, and the project developers – contribute to protracted financing timelines, intensive negotiations, and highly intricate underwriting procedures.

Data Scarcity and Underwriting Complexity

Climate risk underwriters and insurers have historically lacked sufficient data to establish streamlined underwriting processes. Consequently, each new project necessitates the development of a completely unique underwriting model.

The current method of securing offtake contracts is conducted on an individual basis. Projects lacking an offtake agreement from the outset are therefore compelled to seek buyers subsequently.

Evergrow's Approach to Streamlining

James Richards and Luke Whiting, the founders of Evergrow, are focused on simplifying and standardizing these processes.

Richards articulated their ambitious goal: “Our internal objective is to facilitate the avoidance, reduction, or removal of one gigaton of CO2e by 2030, with plans to scale to a billion tons annually in the near future.”

The combined expertise of Richards – a former Wall Street attorney, serial entrepreneur, and early-stage investor – and Whiting – with his data and software background as the former founding COO of Clearbit – positions Evergrow favorably to address this substantial challenge. The recent expansion of carbon markets over the past two years indicates potential profitability, particularly as long-term carbon purchase prices are established.

Reducing Complexity Through Technology

Richards explained how Evergrow intends to diminish complexity: “We aim to achieve this in two ways. First, by proactively developing a programmatic underwriting and funding model for each project type. Second, by leveraging data and technology to automate much of the underwriting process, reducing reliance on manual human effort. Our internal target is to achieve a closing time that is an order of magnitude faster than traditional project finance.”

When questioned about the specifics of their underwriting structure and the capital partners involved, Richards stated, “We are not yet prepared to disclose these details. However, we are exploring various structures with our capital partners to accommodate their requirements… We are actively building a network of multiple financial partners.”

Risk Assessment and Data Utilization

Richards elaborated on how they will assess risk. Evergrow will employ historical data to forecast which project categories are suitable for underwriting and to what extent. The standardization of the underwriting process is now feasible due to the industry reaching a critical mass of data points and established success metrics for carbon projects.

Utilizing data-driven insights, Evergrow seeks to provide more efficient and reliable financing solutions for climate initiatives.

The Significance of Long-Term Offtake Contracts and Revenue Generation

Securing financing for climate-focused initiatives often hinges on the presence of a dedicated offtake contract, as many financial institutions perceive projects without them as excessively risky.

Richards emphasized that establishing long-term offtake agreements within carbon markets is crucial for providing price certainty and, consequently, facilitating capital investment in these ventures.

Data from Ecosystem Marketplace indicates substantial growth in the voluntary carbon market, reporting a nearly 60% increase in value compared to the previous year.

Projections suggest the market is poised to reach $1 billion in transactions by year-end. Given this expansion rate, long-term offtake contracts present a considerable potential for generating returns for Evergrow’s investment partners.

Understanding Offtake Agreements

Offtake contracts are agreements that guarantee a purchaser will buy a certain amount of a product at a predetermined price.

This assurance is vital for project developers, as it mitigates market risk and enables them to secure funding.

The Role in Unlocking Capital

The lack of guaranteed revenue streams has historically been a barrier to entry for many investors in climate projects.

By offering this security, long-term offtake contracts effectively unlock capital that would otherwise remain unavailable.

Market Growth and Potential Returns

The voluntary carbon market is experiencing rapid expansion, demonstrating increasing demand for carbon credits.

This growth, coupled with the stability provided by offtake contracts, positions Evergrow’s capital partners for potentially significant financial gains.

Competitive Landscape and Market Confirmation

The various segments that Evergrow intends to consolidate currently involve numerous participants. While long-term offtake agreements are established practice within the commodities sector, their application to carbon markets is relatively recent. A discernible pattern is emerging, with companies increasingly seeking extended offtake arrangements with initiatives focused on climate solutions.

As an illustration, the collaboration between Swiss Re and Climeworks – with a potential value reaching $10 million – represents one of the most substantial long-term offtake contracts finalized to date.

Evergrow views these instances as indicators of market preparedness, rather than as direct competitive threats.

Richards stated, “The action taken by Swiss Re with Climeworks was encouraging, as it signifies strong market validation.” He continued, “For an organization with Swiss Re’s financial standing to deem this market worthy of entry and offer services comparable to ours is a significant endorsement.”

The scale of the opportunity must be in the billions to even register on Swiss Re’s radar, according to Richards. This served as substantial validation for Evergrow’s business model.

Key Market Signals

• Long-term offtake contracts are gaining traction in carbon markets.
• Partnerships like Swiss Re & Climeworks demonstrate significant investment.
• SiriusPint Ltd.’s collaboration with Parameter Climate highlights growing underwriting support.

These developments suggest a maturing market and increasing confidence in climate-focused financial solutions.

Beyond a Simple Marketplace

Following the completion of underwriting, funding, and the signing of the offtake agreement, the ultimate stage involves returning capital to the investment partners. A competitor, Puro.earth, established a carbon removal marketplace designed to streamline access to purchasers for developers. When questioned regarding the potential creation of a comparable one-to-one marketplace, Richards promptly addressed the matter.

“Evergrow does not facilitate the matching of offtake contracts with investors on an individual deal basis,” Richards explained. “Consider borrowing funds from Brex, whether through a credit card or a line of credit for working capital; Brex doesn’t connect you with a back-end investor who dictates the price and requires your approval. Rather, Brex secures warehouse financing and similar arrangements, enabling immediate access to funds.”

This funding is then aggregated, and investors receive returns from the collective pool.

The parallel is particularly noteworthy given that Michael Tannenbaum, CFO of Brex, is also an investor in Evergrow.

“Our aim is to replicate this structure by securing one or more facilities from the capital markets, into which all our offtake contracts will be consolidated,” Richards stated. “This approach provides investors with the advantages of aggregation, pooling, and leveraged exposure to the underlying assets.”

Stability Through Fixed Pricing

The predetermined price within a long-term offtake agreement provides developers and financing partners with a stable foundation and predictable risk assessment. Evergrow’s capacity to efficiently evaluate and select appropriate projects is crucial to its success, although a detailed understanding of their underwriting model remains essential for a complete assessment.

Evergrow has attracted investment from several prominent figures, including Karen Karniol-Tambour, a Sustainability investor at Bridgewater Associates, Zach Perret, CEO of Plaid, and Max Mullen, co-founder of Instacart.

The company will initially focus its operations in California, with plans to extend its reach across the U.S. Further international expansion will be considered based on the specific nature of the climate project involved.

• Offtake Agreement: A contract outlining the terms of purchase for a commodity or product.
• Capital Markets: Venues where savings and investments are traded.
• Climate Project: Initiatives aimed at mitigating or adapting to climate change.