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💸 "Climate Tech Brings in $16 Billion. Where's It Going?"

The Interchange

Photo by Blogging Guide / Unsplash

Host: Shayle Kann
Guests: Kimberly Zou & Sophie Purdom | Co- Founders | Climate Tech VC
Category: 💸 Venture Capital

Podcast’s Essential Bites:

[6:01] KZ: “Climate tech started off as anything involving mitigating the effects of climate change, but that definition has really evolved as we see all these climate related disasters happening. So for me personally, that definition has evolved to anything making our world more climate resilient as well. And I think the question we get the most often is how is this different from clean tech? In my eyes, I see clean tech more focused on energy and transportation. That was when kind of the solar and wind renewables revolution happened. Whereas climate tech is more involved with comprehensive verticals like food and water and industrials, even things like carbon removal and carbon tech. So I think there's just a wider world of industries that are related to climate tech versus purely clean tech.”

[9:43] KZ: “To no one's surprise, there's been a big step change between 2020 and 2021. So within the first half of 2021, there's been $16 billion of capital flowing into early stage climate tech. So making up more than half of that $ 30 billion [since 2020] within just one half of the year. And over that course of time, there's been 250 deals.”

[22:22] KZ: “The first [sector is] energy. So within energy [we have] new […] generation pathways, energy storage, energy efficiency […]. Then we have the mobility sector, which is things like batteries, EV, OEMs, micro mobility. But one example there that's been a challenge in of itself is how to bucket battery companies, because they kind of fit within the mobility and energy vertical. So those are just some, I think challenges with just trying to black and white categorize what is in which sector. I think the third largest bucket has been food and water. So within that agriculture tech, so ways to increase crop yields, more sustainably, alternative and synthetic protein has been a huge one that investors have poured into, vertical farming, food waste. What I think are emerging, but really interesting sectors are what we call climate. So that being climate risk, insure tech, monitoring and intelligence through satellites, or drones, even things like air pollution sensors. And then there's the category of carbon tech, which includes carbon tracking and accounting software, carbon offsetting software, carbon removal pathways, whether permanent or nature based. Then we have two more categories, which is the industrial sector. So ways of mining more sustainably, […] ways of producing industrial based processes more sustainably, like through steel, or cement. And then finally, there's the category of what we call consumer, which are things like ESG investing platforms, sustainable packaging, circular economy, those things kind of fall within that larger bucket.”

[24:32] KZ: “In terms of dollars of capital funding […] mobility makes up more than 50% of that. […] The next large bucket is food and water. So more than 20% of dollars funded going into food and water. […] Then the third after that, and surprisingly, is energy. So around 15%, within Q2 of 2021, has gone into energy. And then following that, I think, kind of evenly split has been the consumer, the carbon climate and industrial categories.”

[28:39] SP: “The number of deals tells a different story by category. So actually, when we look at the [number of deals], energy is the most active sector still, at about 33% or so of the […] deals that have happened this year, where I think this is really the representative story versus during the pandemic slowdown. About a third of the deals are in the energy sector, with the next most active one being food and water, followed by a really close mobility. So a bit of a shift in where the dollars are versus where the deals are. And that's probably due to some sort of cohort effect of indefinitely the rivian and northwell effect as well. But I'd argue that energy's back with a vengeance. It's just that cohort of businesses tend to be a little bit earlier and therefore garnering slightly lower overall total dollars deployed, then the mobility and food and water sector at the moment.”

[29:53] KZ: “We actually have a really interesting cut of the data showing the difference between Q2 round size in 2020 versus 2021. And series A deals specifically have doubled the average size of same stage deals from the year before. Growth stage deals have actually tripled. So in Q2 of 2020 tract 140 million in terms of average deal size, and now that's ballooned to over 350 million. So just shows the amount of funding coming in, but specifically for those two stages, it means that that cohort […] has gotten a lot more outside interest from investors.”

[35:35] KZ: “Interestingly enough within […] the top 50 climate tech investor list, there's a pretty even break between the specialist and generalist investors. Which, at a high level, is a positive signal in terms of there being more generalist and diversity investors coming into this space and not having as much scar tissue from kind of the from clean tech 1.0.”

[38:59] KZ: “Looking across all of the investors that we've tracked, around 17% of that number of investors are corporate. So whether that's corporates investing directly off the balance sheet, or through corporate venture arms. But it makes up a pretty significant proportion of the amount of investors that are coming into climate tech. And […] it provides a lot of the strategic value add, that I think is necessary, especially for climate tech companies that have to face a lot more valleys of death compared to your typical enterprise SAS company. So a lot more ability to partner at the earlier stages with these large corporations, especially in the industrial sectors, and actually be able to add strategic value add from the earlier stages.”

Rating: ⚡⚡⚡⚡

🎙️ Full Episode: Apple | Spotify
🕰️ 49 min | 🗓️ 09/09/2021
✅ Time saved: 47 min

Additional Links:
Newsletter: Climate Tech VC