What Investors Look For: Planetary Health Startups

The Challenges of Fundraising in Today’s Market

Founders and investors alike acknowledge that securing funding is consistently a complex undertaking. Current market uncertainties are further exacerbating these difficulties.

Kyle Teamey, managing partner at RA Capital Planetary Health, recently shared with TechCrunch that fundraising presents a significant challenge in the present climate. He believes this situation fosters a greater degree of understanding among investors.

Teamey, alongside his colleague Brigid O’Brien, also a managing partner at the firm, recently finalized a $120 million fund – the inaugural fund for RA Capital Planetary Health.

A Shifting Landscape During Fundraising

The team spent two years in the fundraising process, a period during which the market experienced substantial shifts. Initially, the Inflation Reduction Act had just been enacted, and global commerce was thriving. However, these conditions altered considerably within the last six months.

O’Brien emphasizes the cyclical nature of these market fluctuations. She and Teamey have frequently discussed this, drawing upon their extensive experience and observing numerous market cycles throughout their careers.

Both partners possess considerable experience navigating market volatility. O’Brien began her investment career at In-Q-Tel and BPH, a major mining corporation. Teamey, prior to becoming an investor at In-Q-Tel and Breakthrough Energy Ventures, was a founder during the initial wave of clean technology innovation over a decade ago.

Investment Criteria

Through their years of experience, the pair have established a set of criteria to guide their investment decisions.

“Our evaluation process centers around three key criteria,” O’Brien explained. The first is time to market – how rapidly a company can begin generating revenue. “We’ve observed considerable success with even early-stage companies that can achieve this,” she noted, adding that they prioritize companies capable of entering the market within five years.

Secondly, they assess product-market fit.

“We seek evidence that they are developing a product that customers genuinely desire,” Teamey stated. He cautioned against the common entrepreneurial error of assuming demand will automatically materialize.

Finally, Teamey and O’Brien evaluate a company’s capital efficiency. “How quickly can a company move beyond reliance on venture capital?” O’Brien inquired.

Beyond Software: Capital Efficiency in Deep Tech

While software companies often meet these criteria, it isn’t a universal requirement. “There are numerous differentiating factors,” Teamey acknowledged, while also dispelling the misconception that deep tech startups are inherently capital-intensive.

“Capital efficiency can be comparable to that of software companies, although the capital intensity can differ significantly,” he clarified.

This perspective informs their investment strategy, leading them to make initial investments ranging from hundreds of thousands of dollars to $10 million, spanning seed to Series C funding rounds. “The specific round designation is less important than the company’s time to market and alignment with our investment strategy,” Teamey explained.

Portfolio Companies

RA Capital Planetary Health has invested in companies such as Koloma, focused on geologic hydrogen exploration, and AM Batteries, which is pioneering a new lithium-ion battery manufacturing process designed to substantially reduce costs. AI-driven recycling firm Sortera, solar power electronics innovator Optivolt, and energy retailer Bia have also received funding.

This diverse portfolio is a result of comprehensive market mapping conducted by the RA Capital Planetary Health team over the past two years. These maps assist the team in “identifying the most critical factors within a market, understanding the barriers to adoption, and pinpointing companies capable of overcoming those obstacles,” O’Brien said. “They also help us estimate typical time-to-market timelines.”

Navigating the Downturn

This detailed analysis is particularly relevant as they navigate the current market downturn. “This is not the first, nor will it be the last, market cycle we encounter,” O’Brien stated. “Growth won’t always be exponential.”

Teamey added, “Every phase of the cycle has its advantages and disadvantages. Successfully navigating the current challenges will position you for significant success as market conditions improve.”