Climate Tech: The Next Frontier For Startups?

A Deteriorating Climate

There’s no doubt that the earth’s equilibrium is off, and no, it’s not because Mercury is in retrograde. This year we've witnessed some of the most destructive wildfires in history raging everywhere from the Australian bush to the Amazon rainforest and the hills of California. Rising temperatures and drier conditions leave our natural spaces highly prone to fire, and each year’s wildfire season is worse than the one that came before it.

This past decade we've also seen more frequent hurricanes and tornadoes, floods, drought, and conditions more hospitable to infectious disease like Covid 19. We can no longer reasonably deny our impact on the climate.  As we enter the final months of 2020, it has become crystal clear just how destructive our industrial civilization has become to the world.

Many would argue that our governments have, unfortunately, fallen short in addressing the issues of environmental protection and climate change.  Most notably, in 2017, the United States pulled out of the Paris Accords, an agreement by nations to keep the global average temperature below 2° celsius.  The White House office for climate change was eliminated while the current administration’s efforts to revive the coal mining industry have failed because of market forces.

The Private Sector Stands Up To the Challenge

Thankfully, groups outside of the government have taken it upon themselves to address climate change. The private sector, in particular, is tackling climate change head on through the development of new technology, resources, and products. In addition, company leaders are increasingly embracing Environmental, Social, and Governance (ESG) factors to align their companies’ management practices with these principles.  For example Larry Fin, the CEO of BlackRock, pledged that 100% of the company’s portfolios will integrate ESG metrics by the end of the year.

With the climate only worsening, investors are becoming more and more interested in climate-friendly investments. Environmentally conscious asset managers have responded by filling clients’ portfolios with stocks for companies that make a positive impact on the world. As a result, ESG investments are surging with index funds having reached $250 billion dollars. According to GreenBiz, as a whole sustainable assets have doubled to over $30 trillion since 2012. Climate change investing is catching on with millennials, with nearly 90% putting it as a priority when making an investment decision. ESG funds are also a solid investment. The Financial Times reports that 6 out of 10 ESG Index funds outperformed S&P 500 indexes over the last 10 years.

Technology Comes to the Rescue

For real change to happen, we will need to introduce more sustainable technology into mainstream practices. Enter climate tech. Climate tech covers a wide range of new innovations that each have the potential to be lucrative for both venture capitalists and entrepreneurs. A PWC report found that venture investment in climate tech grew five times faster than venture capital overall from 2013 to 2019! Entrepreneurs are innovating in verticals as varied as electric vehicles, to renewable energy to agtech. 

The most renowned climate tech entrepreneur, Elon Musk, has built a name for himself protecting the planet by promoting electric vehicles’ mass adoption. Electric vehicles, one of the most exciting new technologies of our time, can help thwart the worst threat of climate change by replacing gasoline cars.  

Though it got off to a slow start, EV adoption is now taking off. In fact, ReportsnReports predicts that the share of automobiles that are expected to be electric will increase from 3% in 2020 to nearly 22% by 2030 globally.

Elon Musk’s EV company, Tesla, is now more valuable than General Motors, Fiat, and Chryler combined. Regarding electric vehicles, Carlos Ghosn, former CEO of Renault, has said “The time is right for electric cars – in fact, the time is critical.”

But Elon Musk isn’t the only one innovating to help protect the environment.  A new generation of entrepreneurs are leveraging technology to build a more sustainable economy. Taken as a whole, climate tech presents a massive business opportunity.  In fact the World Bank estimates that investments in climate and clean tech will reach up to $6 trillion by 2023. Today, only 11% of energy consumed is derived from renewable sources, so there is certainly a lot of room for growth. 

Electric vehicles are making a particularly large contribution in alleviating the climate crisis given that passenger vehicles consume about a quarter of oil worldwide. While a rarity only a decade ago, electric vehicles are now gaining momentum in part because batteries can now power automobiles over longer distances. They also are becoming more cost effective. Today, the cost of operating an EV is about $485 per year versus $1,117 per year for a gasoline-powered automobile. Companies like Tesla in the U.S and Nio in China are helping electric cars gain mainstream adoption and have lately seen their stock soar.

Besides EVs, renewable energy is another vertical within climate tech that is taking off due to falling costs. The price of photovoltaic cells, devices that convert sunlight into energy, have dropped 89% since 2010 while the number of solar installations have risen sixfold over the past decade. 

Carbon capture and storage technologies also hold the potential to be significant in the battle against climate change given that they are capable of pulling C02 emissions from the atmosphere.  Although currently too expensive for widespread use, carbon sequestration technologies are seeing their prices drop just as EV batteries and solar panels had previously. 

Entrepreneurs and investors who have cashed in on climate tech have done considerably well. Those who invested in the 2018 IPO of Chinese electric vehicle manufacturer Nio, saw their allocation increase by six times. The financial dividend of climate tech investments will continue to reward investors in the coming decades. There are even venture funds like Energy Impact Partners dedicated exclusively to clean tech, Kara Swisher, a New York Times contributing writer, has said that “[She] think’s the world’s first trillionaire will be a clean-tech entrepreneur.”

If you want to raise capital for your early stage climate tech startup, an equity crowdfunding platform could be a good option. For example, crowdfunding investment platform, Republic, offers early stage funding to startups.  Republic has the most active investors of any crowdfunding platform so it is a great option if you are looking to raise a pre-seed or seed round.  

One climate tech startup listed on Republic, GeoStellar, recently had a successful raise from over 700 investors. GeoStellar helps residents come up with a calculation for the value of a solar rooftop system at their home. The startup estimates that a typical home may reduce greenhouse gas emissions by 160 metric tons by going solar.  By helping people transition to renewable energy, GeoStellar is making a small contribution to a cleaner environment. 

What You Can Do

If you’re an entrepreneur and are looking for an idea to get behind for your next venture, consider climate tech.  From transportation to housing to produce, there isn’t any industry that will be untouched by climate change.  By leveraging the climate tech trend, you have the opportunity to create the next billion dollar company. 

If you have a business that isn’t climate focused, you can still make a positive impact by committing to keeping your business environmentally friendly. Conserve energy, buy reusable office supplies, and source materials from eco friendly vendors.

A pledge for conservation will increase the appeal of your products to customers and leave a lasting impression with your investors. As author Robert Swan says “the greatest threat to our planet is the belief that someone else will save it.”