Investors are drawn to climate-change entrepreneurs
Investors are drawn to climate-change entrepreneurs as society realises it faces a ‘world war’-like threat requiring sustained engagement, says Chris Coleridge Carbon13’s Founder and CEO.
Entrepreneurs and not just big corporates are essential for tackling climate change and reaching net zero emissions. History tells us that there are some important types of innovation – disruption, starting new industries, shaping spaces where regulations are fast-moving, cross-disciplinary/cross-sector innovation, even, often, behaviour-change-driving innovation – that are more likely to originate with entrepreneurs.
So, for the past two years I have been talking to angel investors, impact funds and venture capitalists about their appetite for priming these innovations. I’ve detected a clear boost in enthusiasm for investing in such entrepreneurial innovation in just that brief period.
This is a very encouraging development after many would-be investors in environmental start-ups were burned when the wave of cleantech investment that followed Al Gore’s 2006 film An Inconvenient Truth petered out, based as it was on an overestimate of how quickly the regulatory picture might move to reflect climate science.
So why the recent change in sentiment that I’ve observed? I wonder if the devastating California wildfires in summer 2020 may have concentrated many minds.
When I began talking to such investors in 2019, many voiced concern that “hardware-based innovation” (such as electric-car batteries and ‘vertical’ or high-rise farms) is inherently less attractive than internet-based ideas that require less capital to reach “proof of concept” and “product market fit” stages of development.
“We believe that decarbonising the economy and dealing with past emissions (and their consequences) offers many opportunities for building important new companies that can produce venture type returns,” USV Managing Partner Albert Wenger wrote on the firm’s blog.
What the venture capital world is beginning to wake up to is that the investment opportunity posed by climate change is not like the internet, a general-purpose technology that has rolled out, steam-engine-like, through the economy, incrementally changing everything it penetrates; it’s more like a world war, where society’s awareness of the threat it’s under creates a prolonged and intense engagement of the private sector’s capital and its capacity for innovation.
Such shifting sands of concern about the climate crisis have also created an all-too-often undervalued part of the conditions needed for innovation: customers – both net zero-pledging corporates and justifiably anxious consumers – who are highly aware their current arrangements are unsatisfactory, but don’t have a clear idea in mind of how they would like to proceed.
The experimentation and determination of thousands of net zero-minded entrepreneurs will make up a significant element of the answer humanity needs. I’m also confident that clever corporates will adapt their own behaviour for working with such start-ups, and that policymakers will boost government support for such entrepreneurs.
The “road to net zero” is a textbook example of the kind of problem entrepreneurs are here to solve for society: highly uncertain cross-disciplinary innovation work that sometimes works with existing business models but is prepared to disrupt those models and re-stitch the fabric of ecosystems.
Entrepreneurs are willing to start innovation projects while the regulatory ground is just beginning to shift, focused not on the precise payoff to their efforts under different regulatory futures (such as further evolution in carbon trading markets) but more on the innovation they are trying to bring about. Corporates, in contrast, rarely pioneer in committing to innovations dependent on new regulatory environments until those environments have become concrete.
So it’s a good sign that consumers and investors alike are awakening to the opportunity – and necessity – for entrepreneurs to play a crucial role in combating global warming, and we should all hope this trend continues.
Hank Paulson was asked by U2 frontman Bono, who helped found TPG’s impact-investing Rise funds, to lead the new fund on climate change, The New York Times reported. “I’m in a hurry to make a difference,” the former Treasury Secretary said, and such investment in emissions-focused entrepreneurial firms can make a huge difference in creating a more ‘beautiful day’.