By Egor Savvin
As the world grapples to adapt to the harsh realities of climate change, which include natural disasters and unprecedented heat waves, the climate tech sector is playing a role of paramount importance.
Overall venture funding plummeted 35% in 2022 compared to 2021. This was not the case for cleantech, however, which still experienced nearly 30% growth in venture funding between those two years, according to Crunchbase data.
Given this, how can we, as venture capitalists, be prepared to handle 2024?
No. 1: Build partnerships with governments and CVC
Corporations have now adopted a climate-tech strategy that goes beyond environmental, social and governance, which is why green-tech startups often attract corporate venture capital at an early stage of their development. This not only provides money, but also access to a massive R&D infrastructure that would be extremely costly to develop otherwise, and that enables climate-tech startups to accelerate their product development and scalability.
Also, public support, with programs like the Inflation Reduction Act ($369 billion) in the U.S. and the Green Deal Industrial Plan in the European Union (300 billion euros through the RePower EU Plan), is playing a key role. Having government support means that the success of climate-tech startups is critical for the overall objectives of the country.
No. 2: Profitability outpaces growth
Technologies like solar panels and wind turbines have become more affordable, and green energy now competes hand in hand with fossil fuels in terms of profitability.
To illustrate further, between 2012 and 2022, solar and battery costs have decreased by 80%, while wind costs have also fallen both onshore (57%) and offshore, with a 73% drop. Experts’ projections indicate that these capital expenditures, by 2050, could drop up to a further 50%.
Another example of this at play is hydrogen-powered fuel cell trucks. Especially in the heavy-duty truck industry, they have significant advantages over battery electric trucks. While a fuel cell truck can be charged in 20 minutes — this renders 500 kWh of usable energy — a battery electric truck needs between 90 and 120 minutes.
No. 3: Take a portfolio approach and diversify
Climate tech covers a lot. There is transportation (focus on batteries and charging infrastructure), energy (with a focus on renewable energy sources, energy storage, hydrogen and nuclear energy), agritech (alternative proteins, closed-loop farming technologies, and yield improvements), waste processing technologies (like recycling and waste management), CCU (carbon capture utilization) and much more.
All are groundbreaking ideas.
This means that, as a venture capitalist, I can be diversified within climate tech. Unlike many other sectors where this is not the case, this approach protects investors against the industry’s nondiversifiable risk.
No. 4: Choose products with long-term potential
This, for me, is the best risk mitigation strategy and why I am so bullish about climate tech’s long-term potential.
Climate-tech ventures, if successful, will change the world. They will change how we generate energy, how we get from one place to another, what we eat, how we travel, what we wear and much more.
There is so much going on in the industry because there is a pressing need: to protect our planet. This means that, compared to other industries, we do not need to actively market climate-tech products.
The problem they are solving is so urgent that they market themselves. Therefore, once a technology is proven and patented, it is likely to become highly profitable. As investors, we must do the best we can to support our climate tech portfolio companies to get there.
Egor Savvin is a partner at Alfin Ventures and a seasoned investment professional, with more than 10 years of experience in private equity and venture capital. He has considerable expertise in a wide array of industries, including fintech, AI, web3 and climate tech.
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