Climate Tech: Challenges and Opportunities

The Coming Disruption of Planetary Decarbonization

According to Sean O’Sullivan, managing general partner at SOSV, and Carmichael Roberts from Breakthrough Energy Ventures, the effort to reduce carbon emissions globally represents the next significant upheaval of the 21st century.

Such a large-scale shift will inevitably lead to widespread alterations impacting all sectors and facets of everyday existence.

Consequently, a complicated network of obstacles and opposition is anticipated.

Unprecedented Opportunities for Innovation

However, this transformation will also generate exceptional prospects for entrepreneurs and the investors who support them.

These opportunities center around developing and commercializing climate tech solutions, spanning areas like plant-based food alternatives, carbon capture technologies, electric vehicles, and battery recycling processes.

O’Sullivan emphasized the extensive nature of the required changes during his appearance at TechCrunch Disrupt 2021.

He stated that climate tech isn’t a single issue needing resolution, but rather encompasses a vast scope of reinvention across numerous industries.

A Multifaceted Challenge

Specifically, he identified approximately 100 broad areas and 1,000 distinct areas requiring innovation and industrial reconstruction.

This expansive potential has propelled climate tech to the forefront as a highly attractive investment sector.

Despite this interest, achieving success isn’t automatic.

Navigating a Complex Landscape

Climate tech uniquely intersects with almost every existing industry, including transportation, energy, agriculture, consumer goods, the food and beverage industry, and packaging.

A primary challenge for investors lies in thoroughly evaluating startups, their technologies, and their business strategies.

This evaluation aims to ascertain whether a venture genuinely addresses climate concerns or merely engages in superficial “greenwashing.”

Roberts highlighted the broad definition of the field, noting that it includes virtually any innovation capable of reducing overall carbon output.

Is Society Prepared for the Adoption of Climate Technology?

Established interests within traditional industries present a potential obstacle to advancement, even when climate tech companies have secured funding and are expanding their operations. As O’Sullivan pointed out, a natural human tendency is to resist alterations to the status quo.

Nevertheless, both investors have observed a growing willingness to accept new approaches.

“Current conversations reveal a desire among individuals to understand how to adapt, integrate, and supplement existing systems. A significant shift is occurring, with more people asking ‘How can we adopt this transition?’ and even ‘How can we overcome anxieties surrounding it?’”

This evolving mindset is particularly noticeable in sectors undergoing significant change.

Roberts indicated that he perceives this encouraging pattern even within the agricultural, and oil and gas sectors. “Undoubtedly, a segment of the population will actively oppose these developments. However, the majority are increasingly demonstrating a willingness to collaborate. If ‘preparedness’ is defined as a lack of outright opposition, I believe these industries are, on the whole, beginning to become receptive.”

Investor Perspectives on Climate Technology

According to O’Sullivan, the primary function of a venture capitalist lies in accurately identifying emerging trends and evaluating their potential to enhance the human experience. This involves proactively seeking opportunities that promise a superior quality of life for all.

However, forecasting in the climate tech sector presents unique challenges, as public concern often lags behind potential future events like climate-related catastrophes. O’Sullivan advocates for a strategy centered on fostering abundance, improving product quality, and extending the overall well-being and longevity of individuals.

Reinvestment and innovation within existing industries are key to achieving these goals. SOSV recently finalized a $100 million fund dedicated to seed-stage investing. Furthermore, the firm is actively working to reshape industries through HAX, a program designed to accelerate the development of hard tech startups.

In September, SOSV announced plans to establish a $50 million HAX facility in Newark, New Jersey. This new center will concentrate on nurturing startups operating in the industrial, healthcare, and climate sectors.

Breakthrough Energy Ventures adopts a different approach, focusing exclusively on companies capable of removing at least 0.5 gigatons of carbon annually, as stated by Roberts.

Achieving this level of carbon removal necessitates the creation of substantial companies with globally scalable technologies. The technology and associated products must be widely accessible to have a significant impact on a worldwide scale.

Key Investment Criteria

The scale of impact is a crucial consideration for Breakthrough Energy Ventures. Their investment thesis centers around technologies with the potential for pervasive global deployment.

SOSV, conversely, prioritizes early-stage ventures and industrial reinvention. Their HAX program serves as a catalyst for innovation in challenging technological domains.

Here’s a summary of the approaches:

• SOSV: Seed-stage funding, industrial reinvention, HAX program.
• Breakthrough Energy Ventures: Large-scale carbon removal technologies, global scalability.

Both firms recognize the importance of long-term sustainability and the need for innovative solutions to address climate challenges.

Emerging Possibilities

O’Sullivan posits that the current upheaval will generate substantial opportunities for new businesses, predicting the emergence of 500 to 1,000 unicorn companies as industries undergo a fundamental transformation.

Roberts highlighted five key sectors demonstrating significant potential: agriculture, transportation, construction and building materials, electrification, and advanced manufacturing. He questioned the potential for value creation and company formation within these areas alone.

He emphasized a crucial point: any climate tech solution must be desirable in its own right, irrespective of its environmental benefits. “The products need to be exceptional, and that’s what drives substantial business growth,” Roberts stated.

Despite the considerable activity within the climate tech landscape, certain areas require further innovation, according to the discussion. Roberts identified a noticeable lack of focus on ocean-based climate technologies and services. “Surprisingly, more effort is being directed towards air-focused solutions, which is undoubtedly important,” Roberts explained. “However, we’ve only begun to explore the potential of oceans and large water bodies.”

O’Sullivan, conversely, perceives opportunities in scaling production. He specifically mentioned the tools and technologies necessary to bring innovative concepts to commercial viability. “We observe approximately a tenfold increase in total bio-manufacturing capacity every 18 months, and this trend is likely to persist for many years,” O’Sullivan noted. “This encompasses food, materials, and even biomass for carbon sequestration.”

He further elaborated, “We anticipate a significant shift driven by advancements in scaling technologies.” He added, “Startups are poised to play a vital role in every aspect of this evolution, and widespread reinvention is essential.”

Areas Ripe for Disruption

• Agriculture: New technologies for sustainable farming.
• Transportation: Innovations in electric vehicles and alternative fuels.
• Buildings & Materials: Eco-friendly construction practices.
• Electrification: Advancements in renewable energy sources.
• Advanced Manufacturing: Sustainable production processes.

Scaling technologies are critical for translating ideas into commercially viable products. A focus on creating desirable products, even without the 'green' aspect, is key to success.